IZA DP No. 3602: Consumers and the Brain Drain: Product Design and the Gains from Emigration
published in: Journal of International Economics, 2009, 78(2), 287–291
We consider the welfare effects of skilled worker emigration in a context where skilled labor plays a role in product design. We show such emigration can benefit the residents left behind, even when consumers’ tastes exhibit a form of home bias. This is because emigration improves the design of goods designed by skilled emigrants but consumed in the sending country. In contrast to existing models of beneficial brain drain, our results do not require agglomeration economies, education-related externalities, remittances, return migration, or an emigration “lottery”. Instead, they are driven purely by differences in market size that induce skilled emigrants to design better products abroad than at home.