Theory, Evidence, and Implications

Abstract

This chapter reviews the channels through which skilled emigration can affect the source countries. Recent literature suggests that remittances, return migration, diaspora externalities, and network effects favouring international transactions and technology diffusion, as well as brain gain channels, may compensate the sending countries for their loss of human capital. The chapter divides these channels into a ‘human capital’, ‘screening selection’, ‘productivity’, and ‘institutional’ channels, and analyse the links between brain drain and remittances. The development of a partial equilibrium model allows them to combine these various channels in an integrated setting. They quantify the costs and gains of the brain drain for developing countries and analyse how these balance out. In most cases, simulations suggest that at a macroeconomic level, the brain drain may generate short run and long run positive net gains for many developing countries, while adverse overall impacts are found only in a small number of countries exhibiting very high skilled emigration rates.