Migrant Business Networks and FDI

with k₁^' <0, k₂^' >0 and w₁^' <0, w₂^' >0. The economy is developed in that its equilibrium wage is above
the wage of the developing countries and consequently has a positive net immigration rate. The
sources of the wage gap will be considered below. The economy’s equilibrium capital stock is
are skilled and unskilled individuals. The derivatives of this expression, H_U^' < 0, H_S^' > 0, H_P^' > 0 ,
show that the average level of human capital in the economy, and hence the overall productivity of
factors, is a positive function of the number of skilled immigrants and of the share of skilled
workers in the labor force, and a negative function of the number of unskilled immigrants. In turn,
the share of skilled workers depends positively on the skill premium and on the skilled
immigration, while it decreases with the unskilled immigration, P_t = (h,M_t^U ,M_t^S ),

^Ph^{' >} 0,   PU^' < 0,   PS^' > 0. In sum, because of its influence on A(Ht) and Lt, the immigration of

skilled workers has a positive effect on the economy’s equilibrium capital stock and on the level of
wages. On the other hand, the effects of the unskilled immigration on the equilibrium capital stock
are ambiguous. Lt increases, but as a consequence of the larger share of the unskilled labor force,
A(Ht) diminishes. From (4) and (5), however, the effects on the wage and the equilibrium capital per
worker ratio are unambiguously negative, wages decrease and the economy’s production
techniques tend to become more labor intensive. The different effects on income and investments of
the skilled and unskilled immigration help to explain the selective immigration policies of several
developed countries.

II.2. A small developing economy

Let’s now consider a small, less developed economy having the same technology, labor
force N, and skill premium h, of the developed country, but a lower wage rate. In what follows the

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