Karin Mayr, Johannes Kepler University (Linz, Austria)
Giovanni Peri, University of California, Davis and National Bureau of Economic Research
Abstract: Recent theoretical and empirical studies have emphasized the fact that the perspective of international migration increases the expected returns to skills in poor countries, linking the possibility of migrating (brain drain) with incentives to higher education (brain gain). If emigration is uncertain and some of the higly educated remain such channel may, at least in in part, counterbalance the negative effects of brain drain. Moreover recent empirical evidence seems to show that temporary migration is widespread among highly skilled migrants (such as Eastern Europeans in Western Europe and Asians in the US). This paper develops a simple tractable overlapping generations model that provides a rationale for return migration and predicts who will migrate and who returns among agents with heterogeneous abilities. We use parameter values from the literature and the data on return migration to calibrate our model and simulate and quantify the effects of increased openness on human capital and wages of the sending countries. We find that, for plausible values of the parameters, the return migration channel is very important and combined with the incentive channel reverses the brain drain into significant brain gain for the sending country.