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Abstract

This paper constructs a two-sector overlapping-generations model of endogenous growth to study the effects of brain drain on growth, education and income distribution. The engine of growth is human capital accumulation through education and intergenerational spillover. Brain drain reduces both the economic growth rate and the wage rate of the unskilled, but raises the wage rate of the skilled. Brain drain, however, generally hurts the non-emigrants through the static income distributional effects and also the dynamic damage on economic growth and human capital accumulation. If the initial rate of human capital accumulation is relatively low, brain drain could deteriorate both the sum of discounted income and lifetime discounted utility of a representative non-emigrant. Finally, we show that the government can choose to spend more on education in order to counter the detrimental impacts of brain drain on economic growth.