Skilled Migration, FDI and Human Capital Investment

In a globalised world, where factors of production are increasingly mobile, the process of domestic accumulation of HC can be affected in several ways through migration and capital inflows. In addition, endowment of skilled labour and foreign direct investments(FDI) may reinforce each other through possible “complementary effects”. Our paper aims to advance the existing empirical literature on the relationship between international factor mobility and domestic accumulation of HC in developing countries. We provide new evidence on how the presence of foreign firms in the domestic economy and the emigration of skilled workers impact the domestic school enrolment. We also investigate whether existing supply of skilled labour is a significant determinant of inward flows of foreign capital. The interdependence between factor mobility and HC accumulation supports some simple back-of-the-envelop calculations that tend to exclude the presence of a significant ongoing virtuous circle between HC accumulation and FDI inflows. Less developed countries tend to gain domestic human capital under foreign capital inflow (job opportunities for skilled individuals), but they loose domestic human capital through the emigration of highly educated people both directly and indirectly (“disincentive effect” on further investment in higher education).Human Capital Investment, Factor Mobility, FDI, Brain Drain/Gain, Complementarity Effect, Developing Countries,