The brain drain, ‘educated unemployment’, human capital formation, and economic betterment1

Extending both the ‘harmful brain drain’ literature and the ‘beneficial brain gain’ literature, this paper analyzes both the negative and the positive impact of migration by skilled individuals in a unified framework. The paper extends the received literature on the ‘harmful brain drain’ by showing that in the short run, international migration can result in ‘educated unemployment’ and overeducation in developing countries, as well as a brain drain from these countries. A simulation suggests that the costs of ‘educated unemployment’ and overeducation can amount to significant losses for the individuals concerned, who may constitute a substantial proportion of the educated individuals. Adopting a dynamic framework, it is then shown that due to the positive externality effect of the prevailing, economy‐wide endowment of human capital on the formation of human capital, a relaxation in migration policy in both the current period and the preceding period can facilitate ‘take‐off’ of a developing country in the current period. Thus, it is suggested that while the migration of some educated individuals may reduce the social welfare of those who stay behind in the short run, it improves it in the long run.