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This study investigates the effects of migration possibilities on the demand for education and human capital formation in the labour-sending country. The paper assumes that workers have to pay a pecuniary cost privately to receive education under budget constraints. It was found that higher migration possibilities result in an increase in the number of workers who demand education due to increases in its return. However, these workers lower the individual demand for education due to price increases. When the education supply is insufficient, higher migration possibilities may lower average human capital; that is, a brain drain may occur. This contrasts with the usual argument that emphasises the positive effect of migration possibilities. Restrictive immigration policies were found not to be completely detrimental to labour-sending countries since such policies may enhance the human capital formation.

Does Migration Encourage Human Capital Formation in Labor-Sending Country?