Economy & Business, Volume 15, 2021

Abstract: This study explores the effects of study migrants on the host country’s human capital formation under the possibilities of natives’ labour migration. Although it has been a controversial issue whether study migrants exert negative or non-negative effects on natives when receiving education, their effects on natives’ human capital formation have been overlooked in the previous studies that dealt with human capital formation under migration. This study fills this research gap. By assuming an overlapping generations’ economy, this study attempts to clarify whether the host country experiences the brain drain or the brain gain when study migrants have negative effects on the natives’ education. This study finds that natives’ human capital formation can be enhanced even if study migrants exert negative effects on natives’ education. Moreover, study migrants affect natives’ migration decision, causing the brain gain as well as the brain drain in a dynamic context, even in a situation in which study migrants do not remain in the host country after education. Furthermore, the host country may experience the brain drain when the government strengthens education quality regulation. These results suggest that it is not unreasonable for the host countries to accept study migrants even when they exert negative effects on natives’ education and that the government should not always strengthen the education quality regulation when accepting study migrants.