Brain drain or brain gain? Technology diffusion and learning on-the-job

Abstract

This paper studies technology transfer when technology is embodied in human capital and learning requires on-the-job communication between managers and workers. Patterns of technology diffusion depend on where high knowledge managers work and how much time they allocate to training workers. Managers appropriate the surplus training creates and in the open economy managers face a cross-country trade-off between labor costs and the value of knowledge transfer. Complementarity between country level efficiency and managerial knowledge makes learning more valuable in the North meaning that high knowledge managers choose to work in the North and globalization precipitates a brain drain of high knowledge Southern agents to the North. The brain drain reduces learning opportunities in the South and exacerbates cross-country technology differences