Skilled Emigration and its Impact on Economic Development

This paper analyzes the impact of skilled emigration on the economic development of sending countries. Specifically, our study is concerned with how feedback effects of brain drain may mitigate some of the loss incurred from the outflow of talent. We construct an endogenous growth model incorporating skilled emigration to consider in detail how the inflow of remittances, network externalities of the diaspora and the incentive effect influence economic growth. Our model suggests that the overall impact on growth is co-determined by the level of development in the source economy. While intermediately advanced countries most likely experience beneficial effects on productivity growth, low-income and high-income economies may be hindered by binding budget constraints and an inoperative incentive effect, respectively. While some model implications hold up when tested empirically, others do not which might be related to shortcomings in our data and consequential inconsistencies in productivity estimates