Brain drain, informality and inequality: A search-and-matching model for sub-Saharan Africa

Abstract

This paper revisits the effect of brain drain on development and inequality using a two-sector model with formal and informal labor markets. Contrary to existing studies, we use a search-and-matching setting that allows to endogenize the employment structure and the wage differentials between different skill groups in the same sector, and between workers with identical skills employed in different sectors. Theoretically, the brain drain induces ambiguous welfare effects for those left behind as the potential loss/gain depends on the parameters of the model. We thus parameterize our model on 33 sub-Saharan African countries and produce comparative results for each of them. We find that skilled emigration induces heterogeneous welfare losses for the low-skilled population. The size of these losses varies between 0.2 and 8%, and is influenced by the parameters of the production and education technologies. The results are fairly robust to identifying assumptions, to the inclusion of technological externalities, and to the endogenization of training decisions.