Brain Drain, R&D-Cost Differentials and the Innovation Gap

This paper aims at explaining why countries with comparable levels of education still experience notable differences in terms of R&D and innovation. High skilled migration, ultimately linked to differences in R&D costs, might be responsible for the persitence of such a gap. In fact, in a model where human capital accumulation and innovation are strategic complements, we show that allowing labor outflows may strenghthen educational incentives in the lagging economy if migration is probabilistic in nature, but at the same time reduces the share of innovative production. Income (growth) might be consequently affected, and a positive migration chance is very unlikely to act as a substitute for educational subsidies.