BRAIN DRAIN WITH FDI GAIN?FACTOR MOBILITY BETWEEN EASTERN AND WESTERNEUROPE

A growing strand of literature highlights that skilled migration mayfavour growth-enhancing technology transfer, trade and foreign direct in-vestments between the source and the host economies of migrants (net-work effects). We explore a speci…c channel through which the possi-ble "diaspora externality" associated with the current emigration of bothpoorly and highly educated workers may occur: the removal of informa-tional, cultural and reputational barriers that could prevent …rms of high-income countries from investing in the low-income immigrants economiesof origin. By means of a straightforward gravity speci…cation, we takea fragmentation and multinational production model in the fashion ofVenables (1999) to the data. The focus is on the mobility of capital andworkers between the advanced European Union countries (EU15) and NewMember States (NMS) in the 1994-2005 period. The evidence points toa signi…cant correlation between the volume of EU15’s activities in NMSand the total stock of NMS' own-migrants in the EU15 economies. Fur-thermore, the larger is the share of skilled workers in the total emigrationstock the larger is the inward FDI flow....