A BRAIN GAIN OR A BRAIN DRAIN? MIGRATION, ENDOGENOUS FERTILITY, AND HUMAN CAPITAL FORMATION

Abstract

I. INTRODUCTION It is traditionally argued that openness to international migration within a developing country can cause high-skilled workers to emigrate and thereby create a drain problem; (1) however, it has been demonstrated in recent studies that such openness to international migration raises the return on human capital in a developing country, which, in turn, raises the average level of human capital in the source country. (2) This article revisits this issue, building on the prior studies, by examining the impact of migration on economic growth through the role of human capital; there are, however, three features that distinguish this article from the prior works. First of all, while most of the prior studies on migration have tended to focus solely on static models so as to simplify their analyses, we develop a dynamic model of migration within which endogenous growth is generated. (3) This dynamic model enables us to study the dynamic behavior of the economy and to separate the short-run effects from the long-run effects when there are changes in migration policy. An endogenous growth model is constructed in this article to allow for the persistent growth of a source country; hence, we contribute to two strands of the literature, international migration and the endogenous growth model. We also show that, under certain conditions, the balanced growth path (BGP) may exist. To the best of our knowledge, this is the first article to consider the possibility of the BGP within a migration model. Second, we endogenize the fertility choice within the model. It is already widely acknowledged that fertility and education are interdependent decisions for parents; indeed, Becker, Murphy, and Tamura (1990) developed a model to examine the way s in which the joint decisions on fertility and education affect economic growth, while the linkage between growth and inequality was subsequently explored, when differential fertility matters, by de la Croix and Doepke (2003). However, the studies on migration have tended to assume a constant population growth rate and have generally not taken into account fertility decisions; examples include Rodriguez (1975) and Mountford (1997) both of which presented dynamic models to study the issues of migration and economic growth. In both cases, population was taken as an exogenous variable and was assumed to grow at a constant rate. In this article, we allow parents to make fertility and education decisions and to have an opportunity to migrate to a foreign country. Internalizing fertility decisions induces a trade-off between the quality and the quantity of children when there are changes in migration policy. This trade-off will then have an effect on economic growth as a result of its direct effect on the accumulation of human capital. Fertility does matter when considering an economy with heterogeneous agents since it will also affect the structure of the labor force. Third, we include the average costs involved in preparing each migrating child to overcome the various barriers when migrating to foreign countries with different backgrounds, languages, and cultures. A static model with migration costs (such as language skills preparation) was developed by Lien and Wang (2005) in which they found that when including such costs, the openness to international migration may well create a brain drain. Since it is quite common for the governments of developing countries to encourage their citizens to migrate to certain foreign countries, the inclusion of the costs of migration allows us to study the impact of these policies. We develop a migration model within which agents differ from one another based upon their different endowments of human capital, considering two alternative scenarios to facilitate our examination of the effects of migration on economic performance. In the first scenario, we consider the case where the host country cannot differentiate between the abilities of the migrants as a result of asymmetric information between the host country and the migrants. …