## Human Capital Flight: Impact of Migrationon Income and Growth

_IMF Working Papers, December 1, 1994_

## Source details

**Canonical URL:** [Human Capital Flight: Impact of Migrationon Income and Growth](https://www.imf.org/en/publications/wp/issues/2016/12/30/human-capital-flight-impact-of-migrationon-income-and-growth-1109)

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## Bibliographic details
- Published: December 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451921335.001

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### Summary findings
- The paper analyses the impact of government tax and subsidy policy on immigration of human capital and the effect of such immigration on growth and incomes.
- Human capital flight or “brain drain” arising out of wage differentials, for example because of differences in income tax rates or technology, can bring about a reduction in the steady state growth rate of the country of emigration.
- Permanent differences in the growth rates as well as incomes between the two countries can occur, making convergence unlikely.
- In a closed economy, tax-financed increases in subsidy to education can have a positive effect on growth; however, when human capital flight is taking place, such a policy can have a negative effect on growth.
- Subsidizing higher education is more likely to induce substantial brain drain and is likely to be inferior to subsidy to lower levels of education if growth is to be increased.

### Model and mechanisms
- Framework: two-country endogenous growth model with heterogeneous agents and human capital accumulation.
- Mechanism: wage differentials driven by factors such as differences in income tax rates or technology induce migration of human capital (brain drain).
- Consequences:
  - Reduction in steady state growth rate in the country of emigration.
  - Possible permanent divergence in growth rates and income levels between countries.
  - Policy spillovers: educational subsidies in an open economy can alter migration incentives and thereby affect growth outcomes adversely.

### Policy implications and recommendations
- Tax and subsidy policies that increase returns to education in origin countries can unintentionally increase emigration of skilled workers, reducing domestic growth.
- When brain drain is present, policymakers should weigh subsidies to higher education against the risk of inducing emigration; subsidies to lower levels of education may be preferable for increasing growth.
- Policy design in open economies must account for cross-border human capital mobility; policies that are effective in closed-economy models may have opposite effects once migration is possible.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/human-capital-flight-impact-of-migrationon-income-and-growth-1109_