Brain Drain or Gain? Skilled Migration and Human Capital Accumulation in the Developing World

Developing countries have long worried about the prospects of their “best and brightest” moving to the developed world. Some scholars have argued that massive emigration of highly-educated labor deprives these countries of much-needed human capital, leaving them “forever destitute.” However, other scholars have questioned this argument, pointing out that high wages in migrant-receiving countries can serve as an incentive for potential migrants to invest more in human capital than they would otherwise. Some of these high-skilled workers will end up staying, raising the overall level of human capital in developing countries. This phenomenon is referred to as “brain gain.” One key underlying assumption of existing brain gain models is that migrant-receiving countries cannot distinguish high-skilled workers from low-skilled workers when deciding whether to grant them entry. This dissertation argues that while this assumption may have been valid in the past, it no longer reflects today’s world where high-income countries have developed a rigorous screening process and select only the best qualified immigrants. Thus, we need a new theoretical framework to reflect this new reality. Building a model of brain gain based on the “tournament model” introduced by Lazear and Rosen (1979), this dissertation shows that the wage difference between migrant-sending and migrant-receiving countries is the main motivation for potential migrants to acquire more education and compete for higher paying jobs in migrant-receiving countries. This dissertation argues that two key factors determining this income gap are 1) the intensity of screening by migrant-receiving countries and 2) the wage level in migrant-sending countries. Utilizing two exogenous shocks including an increase in screening by the United States following the 9/11 terrorist attacks and a series of affirmative action policies implemented in Malaysia, the dissertation finds that the intensity of screening by migrant-receiving countries has a positive effect on human capital accumulation in migrant-sending countries and a decrease in the wage level in migrant-sending countries has a positive impact on the educational outcomes of potential migrants.