GEP Research Paper 08/40
FDI, the Brain Drain and Trade: Channels and Evidence
Artjoms Ivlevs and Jaime de Melo
Summary
We study the links between migration, trade, and FDI for developing countries taking into account the skill composition of emigrants. We find a complementarity relationship between skilled emigration and FDI.
Abstract
This paper explores the links between the patterns of migration (high vs. low-skill), trade policy, and foreign direct investment (FDI) from the standpoint of sending countries. A skeleton general equilibrium model with a non-traded good and sector-specific labour is used to explore the effects of the skill-composition of exports on FDI. The model suggests that if exports are low-skill intensive, emigration of high- skill labour leads to positive FDI, suggesting that migration and FDI are complements. Cross-sectional analysis using FDI and emigration data for 103 migration-sending countries over the period 1990-2000 finds some support for this conjecture.
JEL Classification: F13, F16, F22
Keywords: brain drain, FDI, migration, trade
Issued in October 2008
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