International Migration, Human Capital Formation, and the Setting of Migration-Control Policies: Mapping the Gains

We investigate the interaction between migration opportunities, the incentive to acquire human capital, the formation of migration policies, and welfare. A positive probability of migration was shown to induce individuals to acquire additional human capital, with consequent increases in per capita human capital and welfare in the sending country. We seek to inquire whether the positive repercussions of migration for the sending country can still be had in a setting wherein the receiving country has a migration policy-formation power, with the maximisation of its natives' welfare as its objective, and when migration controls are costly. Building on Stark and Wang (2002), we construct a two-country model wherein individuals decide how much human capital to acquire in the presence of human capital externalities. We determine the optimal migration policy under alternative assumptions with regard to the distribution of the policy-formation power, and we analyse the human capital and welfare effects of such policies for both countries. We find that the incidence of a welfare gain for the sending country survives in our framework, wherein controlling migration is costly and wherein the receiving country plays an active role in policy determination. We further find that side-payments from the receiving country to the sending country in the form of sharing the costs of controlling migration can endogenously arise as a welfare-improving mechanism. Again, the sending country stands to gain from the prevalence of the migration prospect.