Global Competition for Attracting Talents and the World Economy

Abstract This paper studies the effect of liberalising the international mobility of college‐educated workers on the world economy. First, we combine data on effective and desired migration to identify the net pool of foreign talents (NPFT) of selected high‐income countries. So far, the EU‐15 has poorly benefited from its NPFT while the US has mobilised a large portion of it. Second, we use a micro‐founded model to simulate the effects of skill‐selective liberalisation shocks. In our benchmark model, a worldwide liberalisation induces larger long‐run income gains for the EU‐15 (+8.8 per cent) than for the US (+5.9 per cent). However, less attractive EU countries such as Austria, Belgium, Germany, Greece, Luxembourg and the Netherlands benefit less than the US. In addition, liberalising high‐skilled migration decreases income per worker by 2.5 per cent in developing countries. Overall, it increases efficiency (+6.2 per cent in the worldwide average level of income per capita ) and inequality (+1.2 percentage points in the Theil inequality index). Much greater effects can be obtained if total factor productivity varies with human capital.