Effective Cost of Brain Drain

In developing countries, remittances and intra-family private transfers sent by household members who migrate to more developed countries constitute a fundamental source of income and capital accumulation. Then, it is important to understand the motives of migrants who decide to remit back to their families. Drawing on the theory of labor migration under asymmetric information, we show that low-skilled workers are expected to provide higher amounts of remittances when remittances are motivated by self-interest. This transfer paradox is explained as follows. Since low skilled workers are likely to return home when informational symmetry is restored, the optimal remittance level is a decreasing function of the migrant's skill level since remittances may be seen as an implicit insurance, whose benefits are received only under migration return.