Browsing by Author "Hujanen, Annukka"

The number of international migrants has been steadily increasing from the 1960s onwards. Especially the developed countries have been net gainers of migration, whereas the developing countries have been net losers of emigrants. Because particularly the amount of skilled emigrants has been increasing, brain drain has become a concern. A common understanding of detrimental brain drain dominated the economic literature until the mid-1990s. However, during the 1990s it was noticed that migration into developed countries engenders incentives to invest in education and consequently increases the amount of skilled individuals in developing countries. The purpose of this thesis is therefore to study potential gains from brain drain. The thesis first introduces a simple overview of brain drain. Because the level of schooling determines to a great extent the state of the economic development, the survey pays attention to the effects of emigration on educational decisions. By allowing a proportion of the skilled workers of a developing country to migrate into a developed country, the latent ability of the last individual to acquire education decreases. Consequently, brain drain induces an incentive effect. Secondly, a more detailed human capital accumulation model is introduced to find support for the simple overview of brain drain. By utilizing a wage-setting equation determined by the production sector and a skill-setting equation defined by the utility maximizing individuals, an equilibrium analysis of brain drain is performed. It is assumed that the level of economic development, and consequently the wage-setting equation, depends on human capital through imitation and innovation activities. By examining the impacts of human capital on economic growth, it is shown that an increase in the stock of skilled human capital speeds up the growth the more the closer the economy is to the world´s technological frontier. As the country still approaches the technological frontier, the accelerating effect weakens. Both approaches find certain circumstances which lead to economic gains as a result of brain drain. Particularly, it is detected that the wage rate of the developed country relative to the wage rate of the developing country needs to be sufficiently high in order to engender an incentive effect. Furthermore, the emigration possibility of the skilled individuals must be low enough. The simple overview of brain drain also shows that the amount of highly skilled individuals cannot be previously high. Otherwise the incentive effect does not operate. At the same time, the human capital accumulation model emphasizes that individuals face a minimum subsistence level which creates a liquidity constraint. If the standard of living of the developing country falls below the standard of living of the developed country, the liquidity constraint restricts the educational decisions. Therefore, poverty trap is still a possibility for extremely poor countries. According to the analysis, the best potential for brain drain to result in positive effects on the source country of emigration is for middle-income countries.