Emigration and Capital Flows: Do Migrants’ Skills Matter?

Emigration from developing countries to advanced countries leads to two-way capital flows. The life cycle theory predicts a contraction in savings and a deterioration of the external balance in the countries of origin. Depending on their impact on savings and investment, migrant remittances can reduce or even counterbalance this effect. We find robust empirical evidence for subSaharan African countries that only high-skilled emigration has a significant and negative impact on the current account in these countries. The brain drain induces net capital (savings) flight. We also find that highly-skilled emigrant’s contribution to remittances is less important compared to that of low-skilled emigrants. Incentives for the financing of home economies by skilled migrants would be beneficial.