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Skilled emigration, business networks and foreign direct investment

  • Kugler, Maurice
  • Rapoport, Hillel

In a global context foreign direct investment (FDI) and migration substitute one another in the matching process between workers and firms. However, as labor flows can lead to the formation of business networks, migration can actually facilitate FDI in the long-run. We first present a stylized model for a small open economy illustrating these offsetting effects. We then use U.S. data on bilateral labor inflows and capital outflows to measure the extent of contemporaneous substitutability and dynamic complementarity between migration and FDI. We find that brain drain and FDI inflows are negatively correlated contemporaneously but that skilled migration is associated with future increases in FDI inflows. We also find suggestive evidence of substitutability between current migration and FDI for migrants with secondary education, and of complementarity between past migration and FDI for unskilled migrants. Keywords; brain drain, foreign direct investment inflows, migrant ties and business networks

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0503.

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Date of creation: 01 Jan 2005
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Handle: RePEc:stn:sotoec:0503
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  2. Frederic Docquier & Hillel Rapoport, 2007. "Skilled migration: the perspective of developing countries," CReAM Discussion Paper Series 0710, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  3. Ashish Arora & Alfonso Gambardella, 2005. "The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries," NBER Chapters, in: Innovation Policy and the Economy, Volume 5, pages 1-32 National Bureau of Economic Research, Inc.
  4. Docquier, Frederic & Marfouk, Abdeslam, 2004. "Measuring the international mobility of skilled workers (1990-2000) : release 1.0," Policy Research Working Paper Series 3381, The World Bank.
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  8. Kugler, Maurice, 2000. "The diffusion of externalities from foreign direct investment: theory ahead of measurement," Discussion Paper Series In Economics And Econometrics 0023, Economics Division, School of Social Sciences, University of Southampton.
  9. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1998. "Human capital depletion, human capital formation, and migration: a blessing or a "curse"?," Economics Letters, Elsevier, vol. 60(3), pages 363-367, September.
  10. Michel Beine & Frédéric Docquier & Hillel Rapoport, 2001. "Brain drain and economic growth: theory and evidence," ULB Institutional Repository 2013/10449, ULB -- Universite Libre de Bruxelles.
  11. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  12. Beine, Michel & Docquier, Frédéric & Rapoport, Hillel, 2003. "Brain Drain and LDCs' Growth: Winners and Losers," IZA Discussion Papers 819, Institute for the Study of Labor (IZA).
  13. Manon Domingues Dos Santos & Fabien Postel-Vinay, 2003. "Migration as a source of growth: The perspective of a developing country," Journal of Population Economics, Springer, vol. 16(1), pages 161-175, 02.
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  15. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A brain gain with a brain drain," Economics Letters, Elsevier, vol. 55(2), pages 227-234, August.
  16. Razin, Assaf & Rubinstein, Yona & Sadka, Efraim, 2004. "Which Countries Export FDI, and How Much?," CEPR Discussion Papers 4204, C.E.P.R. Discussion Papers.
  17. Rapoport, Hillel & Docquier, Frédéric, 2005. "The Economics of Migrants’ Remittances," IZA Discussion Papers 1531, Institute for the Study of Labor (IZA).
  18. James E. Rauch & Vitor Trindade, 1999. "Ethnic Chinese Networks in International Trade," NBER Working Papers 7189, National Bureau of Economic Research, Inc.
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  20. McCulloch, Rachel & Yellen, Janet L, 1977. "Factor Mobility, Regional Development, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 79-96, February.
  21. Kugler, Maurice, 2006. "Spillovers from foreign direct investment: Within or between industries?," Journal of Development Economics, Elsevier, vol. 80(2), pages 444-477, August.
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