Is migration a good substitute for education subsidies?

Assuming a given educational policy, the recent brain drain literature reveals that skilled migration can boost the average level of schooling in developing countries. In this paper, we introduce educational subsidies determined by governments concerned by the number of skilled workers remaining in the country. Our theoretical analysis shows that developing countries can benefit from skilled emigration when educational subsidies entail high fiscal distortions. However when taxes are not too distortionary, it is desirable to impede emigration and subsidize education. We then investigate the empirical relationship between educational subsidies and migration prospects, obtaining a negative relationship for 105 countries. Based on this result, we revisit the country specific effects of skilled migration upon human capital. We show that the endogeneity of public subsidies reduces the number of winners and increases the magnitude of the losses. (C) 2008 Elsevier B.V. All rights reserved.