Do Brain Drain and Poverty Result from Coordination Failures?

We explore the complementarities between high-skill emigration and poverty in developing countries. We build a model endogenizing human capital accumulation, high-skill migration and productivity. Depending on the magnitude of the key elasticities, the model economy displays a unique stable long-run equilibrium or multiple stable equilibria, implying that two countries sharing the same characteristics may end up either in a “low poverty-low brain drain” path or in a “high poverty-high brain drain” path. After identifying country-specific parameters, we find that, for a majority of countries, the observed equilibrium has higher income than the other possible one. In 22 developing countries (including 20 small states with less than 2 million inhabitants), poverty and high brain drain are worsened by a coordination failure. For 25 other countries, the risk of a radical worsening of economic performances is high. These results are fairly robust to identification assumptions and the inclusion of a brain gain mechanism.