Journal Article
Diaspora externalities

A view from the South

People make decisions as to whether to migrate based on the costs and benefits they expect for themselves and for their loved ones. Individual migration decisions affect those left behind in ways that are, for some part, taken into account by market forces (e.g., wage effects on labor markets).

For the most part however, emigration affects the current and future growth of source countries in ways that can be seen as pure externalities, that is, unintended consequences of individual decisions that are not reflected (at least not directly) through market prices. This is how the 'brain drain', for example, has been portrayed in the early literature of the 1970s as well as in the first 'new growth' models of the early 1990s. And this also applies, this paper will argue, to the role of migration and diaspora networks that contribute to integrate home countries into the world economy.

While by definition individuals do not internalize the full extent of consequences of their decisions on other’s welfare (for if they were, there would be no externality), these consequences should be, but are seldom, accounted for in policymaking.

Journal Article
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