Will Transition Countries Benefit or Lose from the Brain Drain?

We analyze the theoretical effects on growth and welfare in transition economies of emigration of educated and uneducated labor, of higher emigration probability, etc. Using a Grossman-Helpman growth model, we show that the prospects of labor market integration with the EU raises the expected returns to education, stimulate human capital formation and thus raise the growth rate in the candidate countries. However, given this expected returns, emigration of educated workers tends to lower growth and welfare of those remaining. Thus, while the brain drain reduces welfare, the effects of labor market integration could nevertheless be positive. Emigration of low skilled workers also reduces growth via adverse effects on education. Higher tuition fees, common in transition countries, counteract positive growth effects of market determined wages.