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Does High-Skilled Migration Affect Publicly Financed Investments?

  • Grossmann, Volker

    ()

    (University of Fribourg)

  • Stadelmann, David

    ()

    (University of Bayreuth)

This paper analyzes the interaction between migration of high-skilled labor and publicly financed investment. We develop a theoretical model with multiple, ex ante identical jurisdictions where individuals decide on education and subsequent emigration. Migration decisions are based on differences in net income across jurisdictions which may occur endogenously. The interaction between income differences and migration flows gives rise to the potential of multiple equilibria: a symmetric equilibrium without migration and an asymmetric equilibrium in which net income levels differ among jurisdictions and trigger migration flows. In the former equilibrium, all jurisdictions have the same public investment level. In the latter one, public investment is high in host economies of skilled expatriates and low in source economies. We empirically test the hypothesis that emigration rates are negatively associated with publicly financed investment levels for OECD countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6610.

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Length: 30 pages
Date of creation: May 2012
Date of revision:
Publication status: published in: Review of International Economics, 2012, 20 (5), 944-959.
Handle: RePEc:iza:izadps:dp6610
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