Does High-skilled Migration Affect Publicly Financed Investments?

Authors

  • Volker Grossmann,

    Corresponding author
    1. University of Fribourg; CESifo, Munich; Institute for the Study of Labor (IZA), Bonn
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  • David Stadelmann

    Corresponding author
    1. University of Fribourg, Switzerland; CREMA—Center for Research in Economics, Management and the Arts, Switzerland
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    • We are grateful to three anonymous referees for valuable reviews of our paper. Moreover, we thank Michel Beine, Tomer Blumkin, Barry R. Chiswick, Hartmut Egger, and Hillel Rapoport for helpful comments and suggestions on earlier drafts. We also benefited from discussion with seminar participants at the University of Zurich, University of Geneva, University of Fribourg, the Annual Meeting of the European Economic Association in Milan, and the Annual Meeting of the German Economic Association in Magdeburg and the Annual Meeting of the Swiss Society for Economics and Statistics.


Grossmann: University of Fribourg; CESifo, Munich; Institute for the Study of Labor (IZA), Bonn. Postal address: University of Fribourg, Department of Economics, Bd. de Perolles 90, G424, 1700 Fribourg, Switzerland. Tel:  + 41 (026) 3009383; E-mail: volker.grossmann@unifr.ch. Stadelmann (corresponding author): University of Fribourg, Switzerland; CREMA—Center for Research in Economics, Management and the Arts, Switzerland. Postal address: University of Fribourg, Department of Economics, Bd. de Perolles 90, F408, 1700 Fribourg, Switzerland. Tel:  + 41 (026) 3009382; E-mail: david.stadelmann@unifr.ch.

Abstract

This paper analyzes the interaction between migration of high-skilled labor and publicly financed investment. We develop a theoretical model with multiple, ex ante identical jurisdictions where individuals decide on education and subsequent emigration. Migration decisions are based on differences in net income across jurisdictions which may occur endogenously. The interaction between income differences and migration flows gives rise to the potential of multiple equilibria: a symmetric equilibrium without migration and an asymmetric equilibrium in which net income levels differ among jurisdictions and trigger migration flows. In the former equilibrium, all jurisdictions have the same public investment level. In the latter one, public investment is high in host economies of skilled expatriates and low in source economies. We empirically test the hypothesis that emigration rates are negatively associated with publicly financed investment levels for OECD countries.

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