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Skilled Emigration, Business Networks and Foreign Direct Investment

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  • Maurice Kugler
  • Hillel Rapoport

Abstract

In a global context foreign direct investment (FDI) and migration substitute one another in the matching process between workers and firms. However, as labor flows can lead to the formation of business networks, migration can actually facilitate FDI in the long-run. We first present a stylized model for a small open economy illustrating these offsetting effects. We then use U.S. data on bilateral labor inflows and capital outflows to measure the extent of contemporaneous substitutability and dynamic complementarity between migration and FDI. We find that brain drain and FDI inflows are negatively correlated contemporaneously but that skilled migration is associated with future increases in FDI inflows. We also find suggestive evidence of substitutability between current migration and FDI for migrants with secondary education, and of complementarity between past migration and FDI for unskilled migrants.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1455.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1455

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Keywords: brain drain; foreign direct investment inflows; migrant ties and business networks;

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References

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  1. Docquier, Frédéric & Rapoport, Hillel, 2007. "Skilled Migration: The Perspective of Developing Countries," IZA Discussion Papers 2873, Institute for the Study of Labor (IZA).
  2. McCulloch, Rachel & Yellen, Janet L, 1977. "Factor Mobility, Regional Development, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(1), pages 79-96, February.
  3. Assaf Razin & Yona Rubinstein & Efraim Sadka, 2003. "Which Countries Export FDI, and How Much?," NBER Working Papers 10145, National Bureau of Economic Research, Inc.
  4. Beine, Michel & Docquier, Frederic & Rapoport, Hillel, 2001. "Brain drain and economic growth: theory and evidence," Journal of Development Economics, Elsevier, Elsevier, vol. 64(1), pages 275-289, February.
  5. Kugler, Maurice, 2006. "Spillovers from foreign direct investment: Within or between industries?," Journal of Development Economics, Elsevier, Elsevier, vol. 80(2), pages 444-477, August.
  6. James E. Rauch & Alessandra Casella, 2003. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(484), pages 21-42, January.
  7. Peter J. Klenow & Andres Rodriguez-Clare, 2004. "Externalities and Growth," NBER Working Papers 11009, National Bureau of Economic Research, Inc.
  8. Kugler, Maurice, 2000. "The diffusion of externalities from foreign direct investment: theory ahead of measurement," Discussion Paper Series In Economics And Econometrics 0023, Economics Division, School of Social Sciences, University of Southampton.
  9. Docquier, Frederic & Marfouk, Abdeslam, 2004. "Measuring the international mobility of skilled workers (1990-2000) : release 1.0," Policy Research Working Paper Series 3381, The World Bank.
  10. Rapoport, Hillel & Docquier, Frédéric, 2005. "The Economics of Migrants’ Remittances," IZA Discussion Papers 1531, Institute for the Study of Labor (IZA).
  11. James E. Rauch & Vitor Trindade, 1999. "Ethnic Chinese Networks in International Trade," NBER Working Papers 7189, National Bureau of Economic Research, Inc.
  12. Faini, Riccardo, 2004. "Trade Liberalization in a Globalizing World," IZA Discussion Papers 1406, Institute for the Study of Labor (IZA).
  13. Bhagwati, Jagdish & Hamada, Koichi, 1974. "The brain drain, international integration of markets for professionals and unemployment : A theoretical analysis," Journal of Development Economics, Elsevier, Elsevier, vol. 1(1), pages 19-42, April.
  14. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1998. "Human Capital Depletion, Human Capital Formation, and Migration. A Blessing in a "Curse"?," Economics Series, Institute for Advanced Studies 55, Institute for Advanced Studies.
  15. Beine, Michel & Docquier, Frédéric & Rapoport, Hillel, 2003. "Brain Drain and LDCs' Growth: Winners and Losers," IZA Discussion Papers 819, Institute for the Study of Labor (IZA).
  16. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, American Economic Association, vol. 94(3), pages 605-627, June.
  17. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A Brain Gain with a Brain Drain," Economics Series, Institute for Advanced Studies 45, Institute for Advanced Studies.
  18. Manon Domingues Dos Santos & Fabien Postel-Vinay, 2003. "Migration as a source of growth: The perspective of a developing country," Journal of Population Economics, Springer, Springer, vol. 16(1), pages 161-175, 02.
  19. Asish Arora & Alfonso Gambardella, 2004. "The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries," NBER Working Papers 10538, National Bureau of Economic Research, Inc.
  20. Ramón López & Maurice Schiff, 1998. "Migration and the Skill composition of the Labor Force: The Impact of Trade Liberalization in LDCs," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(2), pages 318-336, May.
  21. Jean-Pierre Vidal, 1998. "The effect of emigration on human capital formation," Journal of Population Economics, Springer, Springer, vol. 11(4), pages 589-600.
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