THE EFFECTS OF FOREIGN UNIVERSITIES ON DOMESTIC HUMAN CAPITAL ACCUMULATION

This article considers the effects upon human capital in a host country when foreign universities open branches within this country. We create a model where aspiring students differ according to inherent ability and choose endogenously how much time to devote to preparing to win admittance to a university. Universities can either be domestic or foreign, and payoffs for the student differ between them. The presence of these foreign universities can potentially increase effort—and so human capital—by providing more incentive to study. However, they can also lead to brain drain as students could be more likely to emigrate upon graduation relative to those who attend a domestic university. We apply this model to China and use parameter values in simulations to assess to what extent inflow of foreign universities provide benefits to China. (JEL D82, I23, I25)