Human Capital Formation, International Labor Mobility and the Optimal Design of Educational Grants

Open Access

Abstract

A two-country, two-period model of international migration with heterogeneous agents highlights microeconomic foundations for examining the interrelation between brain drain, brain gain and whether human capital formation is undertaken at home or abroad. Ex ante choices regarding where to study depend on abilities, relative qualities of university systems, sunk educational investments, government grants, and endogenously determined, individual foreign employment probabilities. Self-selection critically defines an inherently wide-range of conceivably positive or negative net welfare effects. The optimal design of alternative educational grant schemes, aimed at enhancing the source country's welfare, also depends on the heterogeneity of abilities and associated informational assumptions.