Remittances ebb and flow with the immigration tide

EconSouth, Fall, 2008 by Federico S. Mandelman

From a macroeconomic perspective, remittances tend to be countercyclical in relation to the recipient economy. Immigrants tend to send additional funds back home when their relatives face severe socioeconomic hardship; these contributions reduce disposable income volatility and smooth households' consumption paths in economies historically characterized by economic and institutional instability. Thus, the inflow of remittances can dampen the current account reversal and the decline in most macroeconomic variables (such as output, consumption, and investment) in the aftermath of a financial crisis.

The inexact science of tracking immigration and remittances

Given that remittance payments are originated mainly by immigrants, it is clear that remittances and immigration are strongly linked. Thus, remittances are often used to track immigration trends. But this method has its shortcomings because immigration and remittances are both difficult to measure precisely.

Accurately tracking immigration levels in the United States is virtually impossible because the number of undocumented immigrants is unknown. A 2008 study from the Multilateral Investment Fund (MIF), which is administered by the InterAmerican Development Bank, estimates that 47 percent of Latin American and Caribbean immigrants living in the United States are undocumented.

Money can be transferred among countries without any formal record, which makes remittances hard to track, but most remittance transfers are made through formal channels. According to the MIF, in 2006 the percentage of the immigrants who sent remittances through established institutions ranged from 57 percent to 88 percent, depending on the state.

Changing patterns

Growth in remittances from Southeastern states has varied in recent years. Data from the MIF show that in 2004 Florida had the fourth-highest total remittances in the United States at $2.45 billion, and Georgia had the seventh-highest total at $947 million. By 2006 remittances from Florida had increased 26 percent, and Georgia's had increased 83 percent.

This rapid growth in remittances from Florida and Georgia is largely the result of the swift influx of Latin American and Caribbean immigrants. Today about 83 percent of all Latin American immigrants in the United States live in just 10 states. In 2006 Florida ranked fifth and Georgia sixth nationally in the highest concentration of recorded immigrants from Latin America and the Caribbean, according to the MIF.

Recent developments in the United States seem to be affecting the flow of remittances abroad. A 2006 National Bureau of Economic Research working paper by Gordon Hanson argues that a declining number of apprehensions of people attempting illegal entry along the U.S.-Mexican border--despite more stringent border patrols--indicates a decline in the number of people attempting to enter the United States.

The flow of remittances seems to mirror this drop-off; remittances sent to Mexico grew only 1.4 percent year-over-year during the first nine months of 2007 compared with more than 20 percent annual growth during 2002-06, according to the MIF. The recent slowdown in remittances can also be seen on a wider scale. According to the World Bank, total recorded remittances from the United States to Latin America and the Caribbean grew from $17.3 billion in 2002 to $26.25 billion in 2004--a 52 percent increase--and to $38.5 billion in 2006, a 47 percent increase (see chart 2). An April 2008 MIF report, Survey of Latin American Immigrants in the United States, estimates that total remittances from the United States to Latin American countries will increase barely over 1 percent from 2006 to 2008.