Dynamics of Factor Market Liberalization with Financial Frictions

2. Allowing entrepreneurs to move across borders. We find that entrepreneurs who are highly-talented but financially constrained in the financially less developed country migrate to the more developed country to take advantage of better financial markets. We interpret this outcome as brain drain. At the same time, entrepreneurs with enough self-financing capability will migrate from the more developed to the less developed country to take advantage of lower wages. We interpret this outcome as FDI.