DP7002 FDI, the Brain Drain and Trade: Channels and Evidence

Author(s): Jaime de Melo, Artjoms Ivlevs
Publication Date: October 2008
Keyword(s): Brain Drain, FDI, Migration, Trade
JEL(s): F13, F16, F22
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7002

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.