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Brain Drain with FDI Gain? Factor Mobility between Eastern and Western Europe

Listed author(s):
  • Gianfranco De Simone

    ()

    (University of Milan and Centro Studi Luca d\'Agliano)

  • Miriam Manchin

    ()

    (University College London and Centro Studi Luca d\'Agliano)

A growing strand of literature highlights that skilled migration may favour growth-enhancing technology transfer, trade and foreign direct investments between the source and the host economies of migrants (network effects). We explore a specific channel through which the possible \"diaspora externality\" associated with the current emigration of both poorly and highly educated workers may occur: the removal of informational, cultural and reputational barriers that could prevent firms of high-income countries from investing in the low-income immigrants’ economies of origin. By means of a straightforward gravity specification, we take a fragmentation and multinational production model in the fashion of Venables (1999) to the data. The focus is on the mobility of capital and workers between the advanced European Union countries (EU15) and New Member States (NMS) in the 1994-2005 period. The evidence points to a significant correlation between the volume of EU15’s activities in NMS and the total stock of NMS’ own-migrants in the EU15 economies. Furthermore, the larger is the share of skilled workers in the total emigration stock the larger is the inward FDI flow.

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File URL: http://www.dagliano.unimi.it/media/wp2008_255.pdf
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Paper provided by Centro Studi Luca d'Agliano, University of Milano in its series Development Working Papers with number 255.

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Length: 21
Date of creation: 30 Jun 2008
Handle: RePEc:csl:devewp:255
Note: Skilled Migration, Brain Drain, FDI, Offshoring, Multinational firms, Fragmentation of Production, Informational Barriers, Network Effects, Diaspora Externality, Gravity Model
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  1. Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," CEP Discussion Papers dp0495, Centre for Economic Performance, LSE.
  2. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-316, May.
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  10. Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, vol. 43(4-6), pages 935-945, April.
  11. Terra McKinnish, 2005. "Importing the Poor: Welfare Magnetism and Cross-Border Welfare Migration," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  12. Yuko Kinoshita & Ashoka Mody, 2001. "Private information for foreign investment in emerging economies," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 448-464, May.
  13. Canfei He, 2002. "Information costs, agglomeration economies and the location of foreign direct investment in China1," Regional Studies, Taylor & Francis Journals, vol. 36(9), pages 1029-1036.
  14. Borjas, George J, 1999. "Immigration and Welfare Magnets," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 607-637, October.
  15. Keith Head & John Ries & Deborah Swenson, 1994. "Agglomeration Benefits and Location Choice: Evidence from Japanese Manufacturing Investment in the United States," NBER Working Papers 4767, National Bureau of Economic Research, Inc.
  16. John H Dunning, 1998. "Location and the Multinational Enterprise: A Neglected Factor?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 45-66, March.
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