In a perfectly-competitive world, restrictions placed by developing countries to halt a "brain drain" would lead to __________ in efficiency and world output in a static sense;Over time, these restrictions might, other things equal, __________ in the per capita income differences between developing countries and developed countries if skilled labor has important production externalities.

Question

Quizplus · Accepted Answer

Restrictions on the "brain drain" would lead to a decrease in efficiency and world output due to the reduction of skilled labor in the global labor market. Over time, if skilled labor has important production externalities, these restrictions might also lead to a decrease in the per capita income differences between developing and developed countries. This is because skilled labor would be more locally available to generate positive externalities, increasing productivity and potentially reducing the gap between the two types of countries.

In a Perfectly-Competitive World, Restrictions Placed by Developing Countries to Halt