Remittances to Latin America and the Caribbean

The amount of money transferred by foreign workers back to their home countries, known as remittances, has continued to grow annually throughout the Obama administration.

In 2001, the United States worked together with Mexico on programs to reduce the cost of sending remittances abroad. The original idea was that money sent to Mexico and Latin America would help rebuild those economies, and in turn reduce immigration. However, there is no evidence that the inflow of money has reduced the outflow of people. The bigger impact of those new programs was that Mexican migrants were brought into the mainstream U.S. financial system, regardless of immigration status.

In 2014, the Inter-American Development Bank (IDB) reported that remittances received by Latin American and Caribbean countries from around the world had climbed to $62.4 billion, with Mexico remaining the largest recipient of the region. This is almost triple the amount received in 2001, and the majority of it was sent from workers in the United States.

There has been some fluctuation in recent years due to the financial crisis of 2008-2009, but typically we are seeing remittance growth annually. The record high was in 2008 with $64.9 billion.

Remittances provide temporary financial relief at the household level and increase foreign exchange earnings for the receiving country, but they also have an equal negative effect on the balance of payments of the sending country. Keep in mind, this is an outflow of dollars that does not get recycled within the U.S. economy.

For Mexico, remittances are an important source of income. A 2003 survey found international remittances accounted for 15 percent of per capita household income in rural Mexico. However, the long-term effects of massive immigration are detrimental to Mexico’s development and economic viability. A 2005 study found that individuals from areas of Mexico with high rates of migration were less likely to obtain a high level of education. Due to illegal immigrants’ tenuous position in the U.S. labor market they typically only work unskilled jobs in the United States regardless of their education levels, diminishing their incentive to invest in additional education.

About 70 percent of all remittances to Mexico go to living expenses (i.e. mortgage, rent, food, and utilities), compared with only one percent going to business investment. Economically speaking, consumption is the least productive use of income when the goal is growth and development. Only when new capital goods are purchased and implemented does productivity actually increase.

Remittances are an expediency that encourage dependence on the United States and fails to address the address the long-term economic future of Mexico and Latin America.