CESifo Conference Centre, Munich The New Economics of the Brain Drain: Mapping the Gains

We investigate the interaction between migration opportunities, the incentive to form human capital, the formation of migration policies, and welfare. A positive probability of migration was shown to induce individuals to acquire additional human capital, with consequent increases in per capita human capital and welfare in the send-ing country. We seek to inquire whether the positive repercussions of migration for the sending country can still be had in a setting wherein the destination country has a migration policy-formation power, with the maximisation of its natives ’ welfare as its objective, and when migration control is costly. Building on Stark and Wang (2002), we construct a two-country model wherein individuals decide how much human capital to acquire in the presence of human capital externalities. We determine the optimal migration policy under alternative assumptions with regard to the distribution of the policy-formation power, and we analyse the human capital and welfare effects of such policies for both countries. Surprisingly, we find that the incidence of a welfare gai