The effect of high-skilled emigration, foreign direct investment, and policy on the growth rate of source countries : a panel analysis

Abstract

We study the effect of the high-skilled emigration rate on the growth rate of the source countries. We incorporate the foreign direct investment and the policy variables into the panel model and also their interactions with the high-skilled emigration rate, as they are related to the network externality that may be created by the high-skilled emigrants working abroad. We apply the static fixed-effects model and compare it with the results obtained in the dynamic panel model with system generalized methods of moments estimators. We find the negative effect of the high-skilled emigration rate by itself and in its interaction with the foreign direct investment only in the dynamic model. However, we find positive coefficient for the interaction of the high-skilled emigration rate and the civil liberties index, which holds across the static and dynamic specifications. This implies that the effect of the high-skilled emigration rate on the growth rate of the source countries can be positive, and the extent is larger for countries with "poor' civil liberties. The developing countries with low levels of foreign direct investment inflows and "poor' civil liberties can best benefit from the high levels of skilled emigration outward. Through finding significant interactions with other variables, we confirm that the high-skilled emigration should be considered along with other related variables in measuring its impact on growth. The implications offer suggestions for the international trade and aid policies.