Deck 11: Effects on Source Countries

Question 1

Why would high- and low-skilled immigration be positively related? Negatively related?

Answer 1

High-skilled migration may be correlated with low-skilled migration since high-skilled migrants may bring low-skilled family members with them (Gibson and McKenzie, 2011). In addition, networks in the receiving country may reduce migration costs for both high- and low-skilled migrants alike, while better opportunities may attract both groups.

Question 2

How can international migration increase human capital levels in sending countries? Explain the various channels.

Answer 2

Emigration may lead people left behind in the source country to increase their own human capital in an effort to migrate themselves. In addition, source countries may benefit from emigrants returning, which may raise the average level of human capital, or by sending remittances that allow people there to acquire more human capital. As the chapter discusses, there are four main channels through which brain gain may occur: the human capital channel, the productivity channel, the transfer channel and the institutional channel:
The human capital channel allows the level of educational attainment to depend in part on migration prospects.
In the productivity channel, high-skilled emigrants abroad can return flows of income, investment and expertise or move back to the source country themselves.
The transfer channel links emigration to remittances. Remittances relax households' budget constraints and allow households to increase consumption, investment or savings or to pay off loans.
The institutional channel allows for feedback onto political, economic and social institutions in the home country.

Question 3

What are the benefits of high-skilled emigration to the sending country?

Answer 3

An outflow of high-skilled workers may actually increase human capital in the source country via increased transfer of knowledge from abroad and return migration. Relatedly, migrants often send funds, or remittances, to family members.

Question 4

What are the main reasons people send remittances? What factors are likely to influence how much they remit and their reasons for sending funds home?

Question 5

Choose two countries that are large recipients of remittances. Using data from FRED (https://fred.stlouisfed.org/), graph these two countries' remittances as a percent of GDP for the time period of data available in FRED. For each country, provide explanations for changes in remittances over time.

Question 6

Think of an example for each of the four institutional channels that is not given in the chapter.

Question 7

Show the effects of emigration on employment, wages and social welfare if labor supply is not perfectly inelastic. How do the effects differ from the perfectly inelastic case shown in Figure 11.1?

Question 8

Using Figure 11.3, what would happen to the optimal level of human capital in the origin selection if the marginal cost of acquiring human capital decreases across all levels of human capital? Would migrants be more positively or negatively selected? What happens to the average level of human capital in the origin? What would cause marginal costs to fall?

Question 9

Using Figure 11.4, explain why immigration restrictions that favor workers with high human capital in destination countries are beneficial to the origin. That is, how does brain drain lead to brain gain? Will the amount of brain gain increase or decrease if the marginal costs of acquiring human capital decreases? Would could the origin country do to maximize brain gain?

Question 10

Suppose there is a significant brain drain in Singapore. How would brain drain affect the Singaporean housing market? Now suppose the brain drain leads to an increase in remittances sent back to Singapore. Show the effects on the local housing market and briefly discuss the net effects on the local housing market of the brain drain and remittances.