Brain Drain with FDI Gain? Factor Mobility between Eastern and Western Europe

21 Pages Posted: 4 May 2009

See all articles by Miriam Manchin

Miriam Manchin

University College London; Centro Studi Luca d'Agliano

Gianfranco De Simone

Dipartimento di Scienze Economiche, Aziendali e Statistiche

Date Written: June 2008


A growing strand of literature highlights that skilled migration may favour growth-enhancing technology transfer, trade and foreign direct investments between the source and the host economies of migrants (net-work effects). We explore a specific channel through which the possible "diaspora externality" associated with the current emigration of both poorly and highly educated workers may occur: the removal of informational, cultural and reputational barriers that could prevent firms of high-income countries from investing in the low-income immigrants' economies of origin. By means of a straightforward gravity specification, we take a fragmentation and multinational production model in the fashion of Venables (1999) to the data. The focus is on the mobility of capital and workers between the advanced European Union countries (EU15) and New Member States (NMS) in the 1994-2005 period. The evidence points to a significant correlation between the volume of EU15's activities in NMS and the total stock of NMS' own-migrants in the EU15 economies. Furthermore, the larger is the share of skilled workers in the total emigration stock the larger is the inward FDI flow.

Keywords: Skilled Migration, Brain Drain, FDI, offshoring, Multinational firms, Fragmentation of Production, Informational Barriers, Network Effects, Diaspora Externality, Gravity Model

JEL Classification: F11, F14, F15, F21, F22, F23

Suggested Citation

Manchin, Miriam and De Simone, Gianfranco, Brain Drain with FDI Gain? Factor Mobility between Eastern and Western Europe (June 2008). Centro Studi Luca d'Agliano Development Studies Working Paper No. 255. Available at SSRN: or

Miriam Manchin

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Centro Studi Luca d'Agliano ( email )

Via Conservatorio 7
Milan, 20122

Gianfranco De Simone (Contact Author)

Dipartimento di Scienze Economiche, Aziendali e Statistiche ( email )

Università degli Studi di Milano
Via del Conservatorio, 7
I-20122 Milano
+39 02 50321524 (Phone)
+39 02 50321505 (Fax)


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