Financial liberalization and the selection of emigrants: a cross-national analysis

This paper explores the impact of financial liberalization on the migration of high skilled labor from 46 countries to the Organization for Economic Cooperation and Development, taken at 5-year intervals over the period 1985–2000. Using an exploratory factor analysis, we are able to distinguish between two dimensions of financial liberalization, namely the robustness of the markets and their freedom from direct government control. We find that a standard deviation improvement in the robustness of the source country financial sector magnifies the extent of skilled emigration by a factor of about 3.9–5.1 % points on the average. However, a corresponding increase in the freedom of the source country financial sector from government control has a statistically insignificant impact. Further, the impact of improved financial sector robustness on selection is more pronounced for countries with a better quality of institutions in terms of the perceived credibility of the regime in terms of its ability to protect property rights.