The Brain Drain and the World Distribution of Income and Population Growth

Over the last two decades immigration policies in OECD economies have become increasingly selective and the rate of skilled migration from low income economies has risen markedly. This paper analyzes the theoretical implications of this shift in migration patterns for the growth and distribution of world income and population using a model with endogenous education, fertility and migration decisions in both the sending and receiving economies. It shows that Brain Drain migration may cause fertility to fall and human capital accumulation to increase in both the sending and receiving economies. It also shows that the world economy may converge to a special kind of core-periphery equilibrium where increasing inequality between countries is fueled by Brain Drain migration but where, nonetheless, the welfare of agents in both the core and the periphery is increased. Thus Brain Drain migration may increase inequality between countries at the same time as reducing world poverty and increasing world growth.Migration, Growth

The Brain Drain and the World Distribution of Income and Population

This paper models the evolution of the world distribution of income and shows that while the distribution of income per capita across economies in the world will be stable in the long run, the world distribution of population may be divergent. The paper then uses this model to analyze the impact of the current trend towards predominantly skilled emigration from poor to rich countries on fertility, human capital formation, and growth, in both the sending and receiving countries. It shows that in the long run, brain drain migration patterns may increase world inequality as relatively poor countries grow large in terms of population. In the short run however, it is possible for world inequality to fall due to rises in GDP per capita in large developing economies with low skilled emigration rates.

Trading Population for Productivity: Theory and Evidence

This research argues that the di¤erential e¤ect of international trade on the demand for human capital across countries has been a major determinant of the distribution of income and population across the globe. In developed countries the gains from trade have been directed towards investment in education and growth in income per capita, whereas a signi?cant portion of these gains in less developed economies have been channeled towards population growth. Cross-country regressions establish that indeed trade has positive e¤ects on fertility and negative e¤ects on education in non-OECD economies, while inducing fertility decline and human capital formation in OECD economies.

What are the Effects of Fiscal Policy Shocks?

We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. Unlike most of the previous literature this approach does not require that the contemporaneous reaction of some variables to fiscal policy shocks be set to zero or need additional information, such as the timing of wars, in order to identify fiscal policy shocks. The paper's method is a purely vector autoregressive approach which can be universally applied. The approach also has the advantages that it is able to model the effects of announcements of future changes in fiscal policy and that it is able to distinguish between the changes in fiscal variables caused by fiscal policy shocks and those caused by business cycle and monetary policy shocks. We apply the method to US quarterly data from 1955-2000 and obtain interesting results. Our key finding is that the best fiscal policy to stimulate the economy is a deficit-financed tax cut and that the long term costs of fiscal expansion through government spending are probably greater than the short term gains.Fiscal Policy, Vector Autoregression, Bayesian Econometrics, Agnostic identification

Trading Population for Productivity

This research argues that the rapid expansion of international trade in the second phase of the industrial revolution has played a significant role in the timing of demographic transitions across countries and has thereby been a major determinant of the distribution of world population and a prime cause of the Great Divergence in income per capita across countries in the last two centuries. The theory suggests that international trade affected the evolution of economies asymmetrically. The gains from trade were channeled towards population growth in non- industrial nations while in the industrial nations they were directed towards investment in education and growth in output per capita. International trade enhanced the specialization of industrial economies in the production of skilled intensive goods. The rise in the demand for skilled labor induced an investment in the quality of the population, expediting the demographic transition, stimulating technological progress and further enhancing the comparative advantage of these industrial economies in the production of skilled intensive goods. In non-industrial economies, in contrast, the specialization in the production of unskilled intensive goods that was brought about by international trade reduced the demand for skilled labor and provided limited incentives to invest in population quality. The gains from trade were utilized primarily for an increase in the size of the population. The demographic transition was therefore delayed, increasing further the abundance of unskilled labor in these economies and enhancing their comparative disadvantage in the production of skilled intensive goods. The focus on the interaction between population growth and comparative advantage generates an important new insight regarding the distribution of the gains from trade. The theory suggests that even if trade equalizes output growth of the trading countries, (due to the terms of trade effect), income per capita of developed and less developed economies will diverge since in less developed economies growth of total output will be generated primarily by population growth, whereas in developed economies it will be generated by an increase in output per capita.International Trade , Demographic Transition, Industrial Revolution, Growth, Human Capital

Pandemics, food security and the gains from trade

Why has the recent covid-19 pandemic led to the imposition of export quotas in many countries? Why is the agricultural sector highly protected in developed economies? We show how the addition of subsistence constraints to the standard models of international trade together with a potential shock to trade offers a simple explanation of these facts. This simple adaption of the standard trade model also provides a new mechanism for the existence of a ’Transfer Paradox’. A transfer of resources prior to production acts as a kind of ex ante insurance against trade disruption which mitigates the effects of the missing market for trade disruption insurance. The effect of a transfer can be large enough that both the donor and recipient benefit. Although the analysis focuses on agricultural goods it applies to any good or technology regarded as essential for production

‘Good jobs’, training and skilled immigration

Has skilled immigration into the UK led to a reduction in the training of native-born workers? To address this concern, this paper describes a theoretical model where immigration can affect the training of native-born workers both positively and negatively, and where its effects may differ according to the characteristics of the migrant and of the training firm's sector. It then investigates this issue empirically using UK Labour Force Survey data from 1995 to 2018. At the aggregate level, there is a small positive association between skilled immigration and native training rates. However, a more disaggregated analysis finds that the relationship between immigration and native training depends on the skill level of the immigrant, the skill level of trainees, and the sector into which immigration occurs. In particular, traded goods sectors show a positive association between training of UK-born workers and both unskilled and skilled immigration. In non-traded high-wage sectors, the association between skilled immigration and UK-born training is negative. These findings highlight the importance of allowing for heterogeneous effects from immigration when formulating policy or when modelling immigration's effects across the wider economy

What are the Effects of Fiscal Policy Shocks?

We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. Specifically, we use sign restrictions to identify a government revenue shock as well as a government spending shock, while controlling for a generic business cycle shock and a monetary policy shock. We explicitly allow for the possibility of announcement effects, i.e., that a current fiscal policy shock changes fiscal policy variables in the future, but not at present. We construct the impulse responses to three linear combinations of these fiscal shocks, corresponding to the three scenarios of deficit-spending, deficit-financed tax cuts and a balanced budget spending expansion. We apply the method to US quarterly data from 1955-2000. We find that deficit-financed tax cuts work best among these three scenarios to improve GDP, with a maximal present value multiplier of five dollars of total additional GDP per each dollar of the total cut in government revenue five years after the shock.