Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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Uncertain Causes and Effects of Declining Remittances

by Shannon K. O'Neil
August 9, 2007

A recent report by the Inter-American Development Bank (IDB) concludes that Mexican migrants are sending back less money or remittances to their home country than in the past. A survey of 900 migrants showed that only 64% – compared to the previous 71% – sent money home in the first half of 2007. The fall was particularly acute in new migrant  states, or those without long histories of Latino communities. The reasons suggested by the survey are anti-immigrant sentiment in the United States and a general feeling of insecurity and discrimination on the part of migrants. This is leading these workers to save more, and to reduce flows home. The polling results also show that more Mexican migrants expect to leave the United States in the next five years than before, seeming to support these conclusions.

Yet in-depth studies done on remittances show that those migrants with stronger ties to their home country and with greater expectations of returning are more likely to send home remittances (e.g. Cortina and de la Garza 2004). The logic is that they are investing in their home family since they expect to rejoin this community. Some call this the insurance policy effect, as the money sent now ensures the migrants are welcomed back home later.

This logic contradicts those put forth in the IDB report, but points to other potentially overlooked explanations. One is that Mexicans are sending money home increasingly through informal, rather than formal channels (official remittance statistics only count formal flows). The Arizona Attorney General this last year tried to stop Western Union transfers to Mexico over US$500, holding the funds until the senders’ identity could be determined (see Washington Post 1/26/07). The money was seized if the sender was determined illegal. This practice was later itself found illegal and stopped. But fear of discovery or just of lost funds may be channeling remittance flows toward informal channels, lowering official tallies.

The decline in remittances may also reflect the effects of increased border security on migration patterns (though not overall migration numbers). An unintended effect of increased border patrols seems to be the reduction in circular (as opposed to permanent) migration. Supporting this position is the increasing number of children crossing the border (as migrants bring their families to the United States rather than returning home for several months of the year). Permanent migration decreases remittance, as the migrant families create their life here in the United States.

If per capita remittances are indeed declining (and not just shifting to informal channels), this will have varying effects. In Mexico, it will likely mean many more families will remain or fall into poverty, as remittances provide a large portion of the daily needs of migrants’ families. The IDB estimates the recent decline in financial flows will affect at least 2 million people in Mexico. A fall in remittances may also encourage further migration, as more individuals search for jobs abroad to replace the funds previously sent home by relatives. So rather than a positive sign of changing dynamics, this decline in remittances may reflect a deepening of the cycle of human movement and dependency between the United States and Mexico.

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