Capital Accumulation through Studying Abroad and Return Migration

This paper characterizes the interactions among studying abroad, return migration, and capital accumulation, in a two-country overlapping generations model with households of heterogeneous ability. The model exhibits positive selection of migration status (i.e., permanent, return, and non-migrants) based on ability, and over time, return migration increases as capital accumulates. Further, a decrease in the fixed cost of studying abroad and a simultaneous offsetting increase in the fixed cost of working abroad raise the relative supply of capital in the source country without decreasing anyone’s utility. Nevertheless, any single change in either fixed cost cannot achieve it.