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CHAPTER 10 Endogenous Growth and International Labor Migration: The Case of a Small, Emigration Economy Kar-yiu Wong 1. Introduction The present chapter raises and analyzes two issues related to economic growth and international labor migration that so far have received very little attention in the literature. The first one is the relation between economic growth and international labor migration. This issue involves some very important questions to the government planners and economists : How may emigration affect the growth of the local economy? How may emigration affect education and formation of skilled workers? How may emigration affect domestic income distribution in the long run? How may growth have a feedback effect on emigration? While the major part of the literature on international labor migration focuses on static models, some work on analyzing international labor migration in a dynamic context has been made. For example, Rodriguez (1976), Findlay and Rodriguez (1981), and Blomqvist (1986) examine the determination of the education level; Galor (1986) investigates the effects of time preferences on the direction oflabor movement; Galor and Stark (1990) compare the saving behavior of natives and foreign workers in an overlapping-generations model; Galor and Stark (1994) show how immigration may reverse the adjustment of an economy; and Shea and Woodfield (1996) derive the optimal immigration policy in a dynamic setting. However, none of these papers consider the growth effects of international labor migration, or try to answer the questions mentioned above. The second issue raised in this chapter is how workers choose the timing and length of emigration. A worker may choose to emigrate while young or old. Alternatively, an unskilled worker may choose to emigrate now or to get education in the source country first and then emigrate as a skilled worker. A worker may also determine how long she will stay in the host country. By explicitly considering the above decisions of workers, this chapter 289 290 Dynamics, Economic Growth, and International Trade endogenizes the choice of the type of international labor migration. By the type of migration, we refer to: permanent migration, brain drain, and temporary migration. Migration is said to be permanent if the migrants are permitted and plan to stay in the host country permanently, with no intention of migrating back to the source country in the foreseeable future. Temporary migrants are those who go to the host country but expect to return back to the source country in the near future, either voluntarily or involuntarily (as in the case of guest workers). Brain drain refers to the outflow of skilled and professional workers, usually permanently . These three types of migration are related not just to where people work, but also to where people get education.1 In the labor migration literature, usually one type of migration is analyzed at a time. This is not a complete analysis, since it is important to investigate not only whether an individual would choose to migrate, but also when the individual would choose to migrate and, after migration , whether to return back sometime later. Yet, as shown later in this chapter, there are cases in which an individual finds several types of migration preferable to no migration, but one of them may dominate the other types. Furthermore, this chapter also shows that as the source and host economies grow over time, the type of migration that migrant chooses may switch from one type to another. To investigate the issues ofthe relationship between economic growth and international labor migration, and the endogeneity of migration decision , this chapter extends a popular education model (Uzawa, 1965; Lucas, 1988) in the recent endogenous growth literature.2 In this model, an economy can grow perpetually without technological progress due to the unbounded accumulation of human capital. With education, workers can acquire skill and change from unskilled workers to skilled ones. If the economy is closed, workers have to get education at home, but if internationallabor migration is allowed, they have the option of receiving foreign education abroad. The skilled workers then have the options of working at home or in a foreign country. Different types of migration then refer to the locations where the workers choose to receive education and work, and these decisions are analyzed in a unified framework so that we can investigate how different types of labor migration may affect economic growth, and how workers choose one type of migration 1. There are other types of labor migration not considered in this chapter; for example, people that move with physical capital...

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