Bergerhoff et al.

IZA Journal of European Labor Studies 2013, 2:3

http://www.izajoels.com/content/2/1/3

ORIGINAL ARTICLE Open Access

International education and economic growth

Jan Bergerhoff1* , Lex Borghans2 , Philipp K Seegers2* and Tom van Veen2,3,4

*Correspondence:
[email protected]; Abstract
[email protected] In recent years international student mobility increased. While net hosting countries
1 Bonn University, Bonn, Germany
2 Maastricht University, Maastricht, are in a better position to win highly educated students for their labour force, they face
Netherlands the additional cost of providing the education. In much of continental Europe these
Full list of author information is
available at the end of the article costs are not levied on students, but are borne by the national tax payers, making them
an active topic of debate. Borrowing some fundamental equations from the Lucas
growth model, this paper addresses the question whether countries benefit from
educating international students. We derive conditions under which international
education has a positive effect on economic growth, overall and in each specific
country. Based on empirically motivated parameter values to calibrate our two-country
model we find that international student mobility increases steady state growth for
both countries on average by 0.013 percentage points. A small country that is favoured
by the inflows of a larger country could experience an extra growth of 0.049
percentage points. The benefits from international education increase when a country
tunes its education and migration policy.
JEL Classification: I25.
Keywords: International education, Economic growth, Economics of education

1 Introduction
Education is generally viewed as an important determinant for economic growth. In
recent years, international mobility of students in higher education has increased substan-
tially and further growth is expected. This raises the question how the international flows
of students will affect economic growth in general and in particular in those countries
that either receive or send many students.
The aim of this paper is to develop an endogenous growth model that incorporates
the international mobility of students and to calibrate the model to investigate potential
growth effects of internationalisation in higher education. We do this by building a two-
country model, in which a fraction of the students in higher education studies abroad,
around the human capital accumulation equation from Lucas (1988). We assume that the
host country pays the direct costs of the university. Based on the literature we look for
plausible values for the parameters in the model and the uncertainty in these estimates.
Based on this we simulate potential growth profiles for countries that send or receive stu-
dents. Our main findings are that total growth of both countries together always increases
in steady state. Countries that receive a large group of foreign students who stay after their
study will have a larger than average steady state growth rate. At the same time coun-
tries that receive a net surplus of students face an immediate negative shock in income

© 2013 Bergerhoff et al.; licensee Springer. This is an Open Access article distributed under the terms of the Creative Commons
Attribution License (http://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction
in any medium, provided the original work is properly cited.
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 2 of 13
http://www.izajoels.com/content/2/1/3

when internationalisation increases. Receiving a large share of international students,

thus, leads to a lower income at first but will benefit the country in the long run. This pay-
back period is shorter if the fraction of foreign students that stay is larger. An international
labour market that easily adopts home-educated foreign students therefore complements
access for international students to the universities.
The question how internationalisation in higher education affects economic growth has
important policy implications in the debate about the European market for higher educa-
tion. While in countries like Australia, the US and the UK foreign students pay a fee that
covers the costs of higher education, this is not true for European students that want to
study in another European country. The Bologna agreement has created a common mar-
ket for higher education in Europe comparable to the common market that already exists
in the Anglo-Saxon World. There is, however, one main difference between the two mod-
els. Whereas in Anglo-Saxon countries tuition fees differ between locals/nationals and
foreigners (in the US they even differ between in-state and out-of-state students and in
addition between US and foreign students), this difference does not exist in Europe. Free-
dom of settlement in Europe implies that all European students must be treated the same
and hence pay the same tuition fees as domestic students. For the Netherlands, for exam-
ple, this implies that all European students pay the Dutch tuition fee of about 1.800 per
year. For Germany this means that all European students can study for free at a number of
German universities. Governments are therefore confronted with the question whether
they should promote the inflow of foreign European students or should make it less attrac-
tive for foreign European students to study in their country, and perhaps encourage their
own students to study abroad.
This paper is related to literature about the returns to education and endogenous
growth. Economists have been capturing the effect of education on economic growth into
a series of growth models, which go back to the Solow growth model. These models man-
age to capture a broad range of the features associated with education, such as positive
externalities and opportunity costs included in Lucas (1988) or the necessary monetary
investment in Mankiw et al. (1992). Research shows that an investment in education is a
profitable investment: in his overview of empirical research McMahon (2004) finds that
the private rate of return on education is around 10 percent while the social rate of return
is around 17 percent for OECD countries. Empirical evidence confirms the positive effect
of education on economic growth. The key driver of this relation is the positive relation
between education and productivity.
The paper also relates to the literature on student mobility. Existing endogenous growth
models assume that graduates stay in the country after finishing their studies. But with
increasing globalisation and increasing (student) mobility, graduates do not automati-
cally stay in the country in which they have been educated. This does not only hold for
European students: in particular the BRIC countries have been very active in changing
the brain drain into a brain gain by attracting natives who have been educated abroad,
back to their home-country. On the other hand, part of the international student popu-
lation is expected to stay in the host country. This changes human capital as well as the
labour force in a given country and consequently leads to interesting growth effects. What
happens when the net flow of students for a country is negative? Do all countries benefit
from educational globalisation? These questions can be answered from the analysis of this
paper. Similarly, countries subsidising many foreign students query whether the expected
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 3 of 13
http://www.izajoels.com/content/2/1/3

benefits exceed the cost of providing the education. With many students able to move to
their desired place of study, educational protectionism could soon be a matter of debate.
We focus on the relation between educating foreign students and economic growth and
take two specifics of international education into account: first the costs that are involved
if graduates leave the country after graduation and second the mobility of graduates.
The analysis in this paper are based on the assumption that studying abroad may ben-
efit some students. This could be either because the quality of universities in another
country is better in general, or because the match between student and university may
improve. Internationalization could also enhance economic productivity because of the
cultural experience that students obtain in foreign education as argued by Menchtenberg
and Strausz (2008): “The development of multi-cultural skills are seen as indispensable in
a European Union that strives for full economic integration while preserving the diversity
of its cultures” (Mechtenberg and Strausz, p. 110). Alternatively, international education
might also increase cultural intelligence. We contribute to this literature by showing the
relevance of the added value of international education for economic growth. In addition
we take both the sending and the receiving country into account and discuss the relation
between internationalisation of education and internationalisation of the labour market
via migration.
This paper is organised as follows. Section 2 presents the model. In section 3 we discuss
the parameter values that we use to simulate the model. The results of the simulation are
presented in section 3.2. Section 4 concludes.

2 The model
2.1 Basic equations
Our model represents a “Solow style” simplification of the Lucas model Lucas1 (1988).
To model international flows of students we extent the model by introducing a second
country called Foreign, whose variables are marked by asterisks. Our domestic county is
called Home. Production in the model takes place in a similar fashion as in the original
Lucas Model where output depends on capital and effective workers. The latter consist of
the total labour force L times the share of workers v and the stock of human capital h

Y = K α (vhL)(1−α) (1)

Investment into physical capital is derived from a constant savings rate s and depreciates
at a constant rate δ

K̇ = sY − δK. (2)

As in the Lucas model, education is necessary for the creation of human capital. Imagine
a world where there exist three different types of individuals: Workers (vL), students (uL)
and teachers ((1 − u − v)L). Students can either receive their education domestically with
productivity ρ, or they can go abroad and receive foreign education. The productivity
of such international education φ is the sum of the domestic productivity in the foreign
country ρ ∗ and an international premium . Similarly, φ ∗ is the sum of the domestic pro-
ductivity ρ and the international premium for foreign students  ∗ . The term productivity
in this context refers to the rate at which students accumulate new human capital. This
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 4 of 13
http://www.izajoels.com/content/2/1/3

parameter could be heterogeneous among students. If the productivity of foreign edu-

cation together with the international premium is below the productivity of domestic
education it makes no sense for a student to study abroad.
We assume that the productivities of education are exogenous. This is a limitation to
the model as the rate of internationalisation could have an effect on the productivities.
The direction of this effect, however, is so far not determined and could be positive as well
as negative. For this reason and to keep the model simple we assume the productivities to
be fixed. The growth of human capital can be described as:
 
ḣ = hu (1 − i)ρ + i(1 − λ)φ + Ri∗ λ∗ φ ∗ ,
u ∗ L∗
where R = ; φ = ρ ∗ +  and φ ∗ = ρ +  ∗ .
uL
(3)

The structure of this equation is same as in Lucas. In fact, when setting the percentage of
students that study abroad i equal to zero, the equation gives back Lucas’ equation where
ḣ = huρ. The difference to Lucas here is the term in the parentheses, which is a weighted
average of the different educational productivities. The first element (1 − i)ρ weights
the domestic productivity of education by the percentage of Home students enrolling in
domestic education. The second term i(1 − λ)φ looks at the percentage of Home students
that decide to obtain education in the foreign country at productivity φ and return to the
Home. Since it can be expected that students will only study abroad when they benefit
from this we assume that φ = ρ ∗ +  > ρ and φ ∗ = ρ +  ∗ > ρ ∗ . It is a feature of our
model that students who obtain education in the other country might not return to their
country of origin. The parameter λ captures this probability to stay. The second term,
therefore, only includes those international students in Home’s human capital growth that
also return to the country. The last element considers the international students from
the foreign country that decide to study and stay in Home. It is additionally weighted by
∗ ∗
the relative size of the two countries student populations R = uuLL . This is important
because if, for example, Foreign was four times the size of Home and had the same values
for i and u, Home would see four times more students coming into the country than
leaving it for education. Overall, this equation introduces productivity differences and the
concept of brain drain and brain gain to human capital formation.
The original Lucas model does not explicitly distinguish between teachers and students.
A fraction u of the workforce is not working in the productive sector but puts effort in
learning. This fraction u includes both students and teachers, while ρ is the productivity
of teachers and students together. In our extension we need to distinguish students from
teachers, since we assume that teachers always come from the Home country, while stu-
dents might also come from the Foreign country. Our fraction u therefore only refers to
the fraction of students in the population and is thus lower than u in the Lucas model.
Moreover, our ρ refers to the productivity of students in learning and will therefore be
larger than ρ in the Lucas model which refers to students and teachers.
A necessary condition for students to accumulate any human capital is the availabil-
ity of teachers. While students and teachers produce human capital together, we assume
that only students can store human capital. Moreover, we take as given that at any point
in time there exists the same ratio between teachers and students θ in both countries.
This assumption enables us to effectively account for the costs of education and to leave
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 5 of 13
http://www.izajoels.com/content/2/1/3

out teachers from the human capital accumulation equation. Note that the introduction
of teachers was not necessary to account for the cost of producing human capital in the
original model as there were no international students. Moreover, the teacher student
ratio should also have an impact on educational quality. This relation is skipped for sim-
plicity as both the student teacher ratio and the productivity of education are exogenous.
Assuming that both countries have the same teacher student ratio, θ, we define the share
of workers as anybody who is neither a student nor a teacher. As a result, the costs of edu-
cation per student will be very similar in the two countries. The share of workers in the
population is then given by
 
v = 1 − u − uθ 1 − i + Ri∗ .

Student migration has a direct effect on the population size in both countries. We look
at two different scenarios with respect to the balancing of migration flows. In the first sce-
nario we assume that the population size of both countries is constant. Consequently, the
growth in the population through channels other than student migration (the birth rate or
migration of unskilled workers) has to counterbalance the student migration flows. In the
second scenario we will assume that student mobility will cause changes in the popula-
tion size of the two countries. Here we assume all other causes of population growth to be
absent. Consequently the country that net receives most students will face a population
growth while the other country will face a reduction in its population.

2.2 Solution
To be in steady state, capital per effective capita needs to be constant.
K̇
=0
hL
Y K  
⇒s = δ + gh + gL .
hL hL
This leads to:
 1−α
 1−α
α
Y s(1 − u − uθ(1 − i + Ri∗ )) α
=h .
L δ + u ((1 − i)ρ + i(1 − λ)φ + Ri∗ λ∗ φ ∗ )

Even though this expression may seem complex at first sight its interpretation is simple.
All items which are listed in parentheses are constant. Therefore, output per capita grows
at the same rate as the human capital stock given by
 
gh = u (1 − i)ρ + i(1 − λ)φ + Ri∗ λ∗ φ ∗ .

Restricting student migration to balance in steady state requires an additional steady

state condition. Ignoring other types of migration, the change in the Home labour force
is the difference between the inflow of international foreign students who decide to stay
in Home after education and the outflow of the respective Home international students
who decide to stay in Foreign:

L̇ = L∗ u∗ i∗ λ∗ − Luiλ

Since in the steady state the labour force is required to be constant it follows that
Luiλ
L∗ = .
u∗ i∗ λ∗
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 6 of 13
http://www.izajoels.com/content/2/1/3

Plugging this condition into the equations above allows us to solve for the steady state
level and growth of Home if student migration is in balance.

2.3 The effects of international education

Ultimately, this paper seeks to analyse under what conditions international education is
beneficial for a country using steady state output per capita without internationalisation
in higher education as a benchmark. Generally, two types of effects are conceivable. In
the long run, growth effects that lead to a change in growth of output per capita in steady
state are of greatest interest. They generally follow from changes in the human capital
accumulation equation. In the short run, level effects also affect growth rates, resulting
in a lower steady state of capital per effective capita, but their impact on the growth rate
is not permanent. In that spirit, level effects lead to short term increases or decreases
in the growth rate while growth effects prevail in steady state. To investigate both we
compare the steady state levels and growth without international education with those
which include international education.
Starting with the case in which migration flows balance as a whole we can derive
necessary conditions for internationalisation in higher education to be beneficial. We
reproduce each country’s steady state growth equation for convenience. Then, Home and
Foreign respectively, will experience steady state growth equal to:
 
gh = u (1 − i)ρ + i(1 − λ)φ + Ri∗ λ∗ φ ∗
 
1
gh∗ = u∗ (1 − i∗ )ρ ∗ + i∗ (1 − λ∗ )φ ∗ + iλφ .
R
To examine how international education affects the overall growth rate in both coun-
tries we can aggregate the growth rates. Assuming that output per capita in both countries
is comparable, their respective population sizes can be used as weights. International
education increases total growth in the countries if the following holds:
Luρ + L∗ u∗ ρ ∗ Lugh + L∗ u∗ gh∗
<
L + L∗ L + L∗
⇒iρ + i∗ Rρ ∗ < iφ + i∗ Rφ ∗ .

Economic theory would predict that students only go abroad if it is more productive.
If this assumption holds, it is beneficial for both countries together to open up for inter-
national students. The question remains, however, whether both countries separately
benefit from internationalisation. Home will experience an increase in its growth rate if:
 
uρ < u (1 − i)ρ + i(1 − λ)φ + Ri∗ λ∗ φ ∗ .

Ri∗ λ∗ φ ∗ is always positive. This is not necessarily true for (−i)ρ + i(1 − λ)φ which is
positive only if

ρ < (1 − λ)φ.

Hence, the domestic productivity must be lower than the international productivity
times the share of students that returns to Home. If this term is negative it has to be
sufficiently small to make the steady state growth rate positive. A negative growth rate
is only possible in either Home or Foreign, but not in both. In general, the country that
receives and keeps the smaller share of foreign students faces a lower growth rate.
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 7 of 13
http://www.izajoels.com/content/2/1/3

The steady state growth rates determine the effects of internationalisation in the long
run. In the short run, however, matters can turn out very differently. Immediately after
the introduction of international student flows, the only effect is that the country that
receives more students needs more teachers, while the other country needs fewer teach-
ers. Since we assume the same teacher to student ratio in both countries, this implies that
the aggregate short run effect is zero. For each country individually, however, this direct
effect might be positive or negative depending on whether more or less members of the
labour force are required for teaching.
1−α   1−α
s(1 − u − uθ) α < s 1 − u − uθ(1 − i + Ri∗ ) α
⇒i < Ri∗ .

To investigate the effects of internationalisation on growth if students migration leads

to changes in the population of both countries a similar analysis is informative. The steady
state growth rate in the home country is now equal to

gh = u((1 − i)ρ + i(1 − λ)φ + iλφ ∗ ).

Growth in both countries together is higher with international education if the follow-
ing holds true.
Luρ + L∗ u∗ ρ ∗ Lugh + L∗ u∗ gh∗
∗
<
L+L L + L∗
λ ∗ λ
ρ < φ + ∗ φ∗.
⇒ρ +
λ∗ λ
Again, this assumes that output per capita is comparable in the two countries so that
population sizes can be used as weights. The term will always be positive if international
students are rational and hence ρ < φ. Moreover, a country is able to benefit individually
from internationalisation in higher education if it holds that.

uρ < u((1 − i)ρ + i(1 − λ)φ + iλφ ∗ )

λ (4)
⇒ρ < φ + .
1−λ
This condition is always met if ρ < φ. Moreover, we can see that in the long run, when
migration is balanced, the growth rate increases with the productivity of education of
domestic students in the foreign country. A certain share of these students returns to
Home after graduation. Additionally, Home benefits by the international premium that
Home students in Foreign gain. This effect increases if more foreign students decide to
stay in Home after education.
Finally, we can have a look at the level effects in the case where student migration
balances.
   1−α
1−α λ α
s(1 − u − uθ) α < s 1 − u − uθ 1 − i + ∗ i ;
λ
⇒λ < λ∗

This means that if student flows balance the level effect is no longer dependent on the
actual student inflow but on the probability that those students stay in the country. If the
probability that home students stay abroad is smaller than the probability that foreign
students stay in Home, the level effect is positive in the home country.
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 8 of 13
http://www.izajoels.com/content/2/1/3

3 Empirics
3.1 Parameter callibration
In order to apply the model it is essential to evaluate its parameters empirically. The exact
share of international students depends on the country at hand. Within the model the
internationalisation rate i is measured in terms of the share of students which are edu-
cated in a foreign country. A broad comparison of those rates of internationalisation is
possible with the help of a yearly assessment by Eurostat. According to their measure-
ment, internationalisation within Europe averages 2.9 percent in 2012. However, given
that not all international students register in the foreign country, the Eurostat figures are
likely to be under-reported. This becomes visible at the example of the Netherlands, for
which Nuffic collects data on a university level. While Eurostat reports that 2.3 percent
of the Dutch students go abroad, Nuffic reports a rate of internationalisation of 7.1 per-
cent in 2011. Since the Netherlands are below the European average in terms of outgoing
students according to Eurostat 2012, the simulations are done for international shares
between 5 and 10 percent.
Data quality is weaker when it comes to the probability to stay in a foreign country after
graduation. In a recent paper, Bijwaard (2008), suggest that male study related migrants
have a chance of 19 percent to stay in the Netherlands. For female students the chance
is estimated at 26 percent. The values fluctuate strongly between different countries of
origin. Moreover, these figures might be over reported. The data includes only students
who register in the Netherlands and these have a higher probability to stay than students
which do not even register in the first place. Hence the probability to stay used in the
simulations is 15 percent.
To estimate the share of students in the labour force as measured by the model
we consider the working population only. Eurostat data shows that men in Europe
work between 40 and 46 years over their lifetime, while women work 36 to 44 years
Brugiavini and Peracchi (2005). Moreover, university education is supposed to require
three to four years for a Bachelor and four to six years for a Master degree. In
reality even more time may be needed to finish university. Combining this infor-
mation with the European target that 40 percent of the population should hold a
university degree allows to calculate scores for the share of students. These range
between roughly 2.5 percent and 7.5 percent, and hence, 5 percent will be used in the
simulations.
Values for the teacher to student ratio θ can be found on the basis of data published
by the European Commission. Currently, there is a total of roughly 19 million students in
Europe, while higher education institutions employ 1.5 million staff members. Hence, θ
should be close to 8 percent. This number neglects workers that work on buildings and
equipment for the university sector.
Suppose there was no international education. Setting i = i∗ = 0, the human capi-
tal accumulation equation would reduce to ḣ = huρ as in the original Lucas model. The
parameter ρ, then, represents the growth of the human capital stock. In a sense, it is the
return on human capital for every unit of human capital each time period. To evaluate
plausible values for ρ we make use of the vast literature estimating real returns to edu-
cation. In their influential review paper, Psacharopoulos and Patrinos (2004) estimate the
social return on investments into education to be 10.8 percent. In the context of our model
every unit invested in human capital grows with rate ρ and every one percent increase in
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 9 of 13
http://www.izajoels.com/content/2/1/3

human capital results in a (1 − α) percent increase in output. To obtain an estimate for ρ

we hence use that
redu ≈ ρ(1 − α)
Setting redu = 10.8 and α = 13 gives an estimate for ρ at 15.75 percent. The return
in human capital that is specific to international education is given by . This variable is
important as it determines the extra learning gains from international education. Unfor-
tunately, not much conclusive evidence exists on whether international education holds
a return premium. However, several empirical studies have shown that students spend-
ing time abroad have benefited in terms of improved language skills and better cultural
understanding (Freed (2004); Sutton and Rubin (1995)). Many verbal accounts, moreover,
suggest that students undergo some personal development when going abroad. Interna-
tional experience, indeed, catches a wage premium in the labour market, but currently it
is uncertain how much of it is attributable to selection Oosterbeek and Webbink (2006).
Applying the same approximation as above  = 0.02 implies a rate of return premium of
about 1.3 percent.

3.2 Simulations
The model as formulated can be calibrated to fit many different pairs of countries. When-
ever we compare our findings to an economy with purely domestic higher education,
we name this economy “Lucas”. Whenever we do this, we mean that we are comparing
our results to the simplified version of the Lucas model rather than with the original. In
the following section we will consider a pair that has the same parameter values except
for size, where we assume that the labour force of the foreign country is initially four
times larger. This setup roughly resembles the cases of Germany and the Netherlands.
All parameter values used lie within the ranges established in the previous section. Thus,
we let
1
α= ,
3
s = δ = 0.1,
θ = 0.08,
u = 0.05,
i = 0.1,
ρ = 0.15,
λ = 0.15.
Imagine this two-country world and suppose that international education does not
carry any premium. Given that all parameters are identical with the exception of popula-
tion size, we should expect to see a great surplus of students entering the small country
every period of time. Since all students have the same probability to stay, the small coun-
try then faces a positive migration of well-qualified students as compensation for the
initial increase in the cost of education. Figure 1 plots the development of both countries’
income per capita relative to what it would have been without international education.
The left panel assumes that the population size of both countries remains the same, and
thus that student migration is offset by exogenous factors. The small country represented
by the thick line initially starts off at a lower income per capita level. This decrease in
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 10 of 13
http://www.izajoels.com/content/2/1/3

Ypc
Ypc
YpcLuc YpcLuc
1.020
1.015 1.002
1.010
1.000
1.005
1.000 0.998
0.995
0.996
Time Time
10 20 30 40 50 10 20 30 40 50

Figure 1 Base scenario without labour adjustments (left), with labour adjustment (right).

GDP per capita equals −0.084 percent. However, since it enjoys a larger growth rate, it
reaches the no-internationalisation level of income within only four periods. Thereafter,
brain gain leads to constantly higher levels of income than under the non-international
“Lucas regime” and to 0.034 percent faster growth in steady state.
Table 1 gives additional comparative statics for this scenario relative to the domestic
education economy, which, under our parameters for u and ρ, grows at 0.75 percent in
steady state.
If more students of the home country study abroad (i = 0.15) the extra steady state
GDP-growth decreases. When the mobility of foreign students increases (i∗ = 0.15) the
steady state growth rate increases. A simultaneous increase in both mobility rates is more
advantageous for the smaller than for the larger country. The same is true for the per-
centage students that stay in the country of study. An increase of the fraction of students
that remain abroad negatively influences the growth rate, but the smaller country benefits
more from a higher percentage of stayers than the larger country.
The right panel of Figure 1 shows what happens if the population size of both countries
starts to change due to student mobility. Since for the Home country GDP growth is now
accompanied by a population growth Home needs much more time to recover from its
initial drop, and GDP per capita will grow slower. The reason for this is that the capital
stock only adjusts gradually to the increased population size. If increase in the number
of workers would be accompanied by an extra investment in capital, the growth patterns
would look more like in the first panel. Figure 2 shows what happens in the very long run.

Table 1 Comparative statics for the left panel of Figure 1

NL DE
Rel. to Lucas Init. (%) Recov. in (t) SS Gr.(%) Init. SS Gr.
Base L. exog. -0.084 4.00 0.034 0.021 -0.0085
i = 0.15 -0.070 4.00 0.028 0.017 -0.0071
i∗ = 0.5 -0.141 4.00 0.056 0.035 -0.014
i = i∗ = 0.15 -0.126 4.00 0.051 0.032 -0.013
λ = 0.2 -0.085 4.50 0.030 0.021 -0.0075
λ∗ = 0.2 -0.085 2.75 0.049 0.021 -0.012
λ = λ∗ = 0.2 -0.085 3.00 0.045 0.021 -0.011
ρ = ρ ∗ = 0.2 -0.085 3.00 0.034 0.021 -0.0085
ρ = ρ ∗ = 0.1 -0.085 6.00 0.034 0.021 -0.0085
 =  ∗ = 0.02 -0.085 2.75 0.049 0.021 0.0044
 =  ∗ = 0.05 -0.085 1.75 0.070 0.021 0.014
The first column gives the initial change of output per capita relative to Lucas. In the second column we give the time it needs to
reach the Lucas’ level of output per capita again. The third column has the changes in the steady state growth rate due to
internationalisation in percentage points.
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 11 of 13
http://www.izajoels.com/content/2/1/3

Ypc gh
YpcLuc ghLuc
1.04
1.020
1.03
1.015
1.02
1.010
1.01
1.005
1.00 1.000
0.99 0.995
0.98 0.990
Time Time
200 400 600 800 100012001400 200 400 600 800 100012001400

Figure 2 Long run adjustment of per capita income and human capital relative to Lucas when labour
is endogenous.

With a constant increase in population the smaller country becomes larger and larger.
This means that the mobility flows become more equal. The smaller country has more
students and, therefore, also more students will study abroad. Eventually, the differences
in population size will disappear and the growth effects vanish. It should be stressed that
this result is a consequence of having constant and equal parameter values for u, i, λ and
ρ. If one country, for example, has a higher internationalisation rate, country sizes will not
fully equalise in the long run.
Thus far, in the Figures we have only considered the purely distributional effects of
international education. Figure 3 repeats the simulation assuming an international pre-
mium of two percent corresponding to about 1.3 percent greater returns to education.
This corresponds to the penultimate row in Table 1. Relative growth rates of both coun-
tries increase across scenarios such that in either scenario both countries benefit from
international education. Economic growth in the home country increases from 0.034 per-
centage points to 0.049 while for the foreign country a lower growth of −.0085 turn into a
faster growth of 0.0044. Based on these parameters economic growth in the smaller coun-
try would increase with 0.049 percentage points while GDP per capita would increase
with 0.0044 percentage points. The average annual extra growth in both country therefore
equals 0.013 percentage points.
This shows that at the most plausible values of the parameters international education is
beneficial for both countries. Naturally, policy makers can attempt to increase their share
of the overall gains, by targeting variables like the probability to stay through migration
policy or by making it easier for foreign students to start studying. Even if no international
premium exists, international education may be mutually beneficial. This is, for example,
the case when one country has a higher productivity in educating students than the other
country; a relationship we may see between a more and a less developed country. Under

Ypc Ypc
YpcLuc YpcLuc
1.020 1.010
1.015 1.008
1.010 1.006
1.005 1.004
1.002
1.000
1.000
0.995
0.998
Time Time
10 20 30 40 50 10 20 30 40 50

Figure 3 Scenario with  ∗ = 0.02 without labour adjustments (left), with labour adjustment (right).
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 12 of 13
http://www.izajoels.com/content/2/1/3

Ypc
Ypc
YpcLuc
YpcLuc
1.020
1.015 1.030
1.025
1.010
1.020
1.005 1.015
1.000 1.010
0.995 1.005
Time Time
10 20 30 40 50 10 20 30 40 50

Figure 4 Case where countries are unsymmetric in most parameters except size:
ρ = 0.2,ρ ∗ = 0.1; i = 0, i∗ = 0.2; λ∗ = 0.2.

the assumption that only students from the less developed country want to study and
stay in the more developed country, international education is universally beneficial as
shown in Figure 4. Here, the less developed country benefits as the higher human capital
of the students returning from the developed country outweighs the human capital loss
from brain drain. The developed country loses in the short run due to the higher costs of
education, but quickly recovers and gains from the inflow of talented students later on.

4 Conclusions
In this paper we developed an endogenous growth model to investigate the effects of
internationalisation in higher education on economic growth. In aggregate, assuming that
individual students only go abroad when that is beneficial to them, in the long run inter-
nationalisation is always beneficial for the two countries together. The distribution of the
gains, however, depends on a variety of parameters like the rate of internationalisation and
the probability to stay in a foreign country. While there are cases in which both countries
gain, it is also possible that one country loses.
This implies that there can be two obstacles for the internationalization of university
education. First, countries that emphasise short run effects in their decision making might
try to limit access for foreign students. The reason for this lies in the costs of education
which lower short term output. Second, an unequal division of the benefits of internation-
alisation might hamper international agreements about international cooperation. Since
it will be hard for countries to stop students from studying abroad it will especially be dif-
ficult to benefit from internationalisation when the countries that receive students do not
benefit from this, because a large fraction of the graduates leaves the country after the
study. In a situation of high labour mobility a prisoner’s dilemma might therefore occur.
In the opposite extreme, if a substantial fraction of the students stays in the country of
study, it will be attractive for each individual country to promote foreign students to study
in their country. This could lead to a rat race in which countries attempt to get an as large
as possible share of the flow of international students. Considering long-term growth, a
country benefits if it attracts many foreign students who stay in the country. A policy to
open up universities for foreign students is therefore complementary to a policy to make
the labour market attractive for these foreign students.

Endnotes
1 Lucas (1988) calculates the savings rate endogenously. We assume a constant savings rate

as in Solow (1956).
Bergerhoff et al. IZA Journal of European Labor Studies 2013, 2:3 Page 13 of 13
http://www.izajoels.com/content/2/1/3

2 Alllabour that is required to build and maintain the universities has to be counted as
teachers in this model.
Competing interests
The IZA Journal of European Labor Studies is committed to the IZA Guiding Principles of Research Integrity. The authors
declare that they have observed these principles.

Acknowledgements
We thank Jo Ritzen, the participants of the IIPF 2011 congress and of the Maastricht Macro Seminar for their useful
comments. Furthermore, we gratefully appreciate the effort and comments of two anonymous referees.
Responsible editor: Martin Kahanec

Author details
1 Bonn University, Bonn, Germany. 2 Maastricht University, Maastricht, Netherlands. 3 Nyenrode Business Universiteit,

Breukelen, Netherlands. 4 CESifo network, Munich, Germany.

Received: 19 November 2012 Accepted: 21 March 2013 Published: 18 April 2013

References
Bijwaard GE (2008) Immigrant migration dynamics model for The Netherlands. J Popul Econ 23: 1212–1247
Brugiavini A, Peracchi F (2005) The Length of working lives in Europe. JEur Econ Assoc 3: 477–486
Freed BF (1995) Second language acquisition in a study abroad context. John Benjamins Publishing Company,
Amsterdam and Philadelphia
Lucas E (1988) On the mechanics of economic development. J Monetary Econ 22: 3–42
Mankiw NG, Romer D, Weil DN (1992) A contribution to the empirics of economic growth. Q J Econ 107: 407–437
McMahon W (2004) The social and external benefits of education. In: Johnes G Johnes J (eds). International Handbook on
the Economics of Education. Edward Elgar Publishing Ltd. pp. 211–259
Mechtenberg L, Strausz R (2008) The Bologna process: how student mobility affects multi-cultural skills and educational
quality. Int Tax Public Finance 15: 109–130
Oosterbeek H, Webbink D (2006) Assessing the returns to study abroad. CPB discussion Paper 64
Psacharopoulos G, Patrinos HA (2004) Returns to investment in education: a further update. Educ Econ 12: 111–134
Solow R (1956) A contribution to the theory of economic growth. Q J Econ 70: 65–94
Sutton RC, Rubin D (2004) The GLOSSARI project: Initial findings from a system-wide research initiative on study abroad
learning outcomes. Front J 10: 65–82

doi:10.1186/2193-9012-2-3
Cite this article as: Bergerhoff et al.: International education and economic growth. IZA Journal of European Labor Studies
2013 2:3.

Submit your manuscript to a

journal and benefit from:
7 Convenient online submission
7 Rigorous peer review
7 Immediate publication on acceptance
7 Open access: articles freely available online
7 High visibility within the field
7 Retaining the copyright to your article

Submit your next manuscript at 7 springeropen.com