Migrants' Remittances and Related Economic Flows

Report
February 24, 2011

Migrants to the United States often send money to people in their home country or take it with them when they return home. Those transfers can involve sending money through banks or other institutions to family members or others in the home country, making financial investments in the home country, or returning to the home country while retaining bank accounts or claims on other financial assets in the United States. All three types of actions are similar in their economic effects, even though only transfers of money through banks and other financial institutions to foreign individuals are commonly thought of as migrants' remittances.

 

As one of the most important destinations of global migration, the United States is the largest national source of remittances. The opportunity to send or bring remittances home is one of the important motivations for migration, and policies that affect migration to the United States could affect outflows of remittances. In turn, the flow of remittances can affect economic growth, labor markets, poverty rates, and future migration rates in the United States as well as in recipient countries.

This document updates and expands upon the Congressional Budget Office's previous analysis of remittances—Remittances: International Payments by Migrants (May 2005)—and presents data through 2009. The new presentation provides a better view of people's total transfers of money between the United States and other countries but, because of changes in the way the data are collected and reported, does not provide as much information as was previously available on the portion of those transfers that is attributable to migrants. (See "Notes and Definitions" at the beginning of the full document for a summary of terminology and the appendix for a discussion of recent changes in the classification of remittances.) The existing data on global remittances and related economic flows are not of very high quality, and the comparisons and trends reported here should be viewed only as approximations.

Remittances from the United States (Exhibits 1 to 4)

The Bureau of Economic Analysis (BEA) estimates that migrants' remittances totaled about $48 billion in 2009—nearly 70 percent more than official development assistance provided by the U.S. government. Nearly $38 billion of that amount was personal transfers by foreign-born residents in the United States to households abroad. The rest, about $11 billion, reflected the compensation of employees who were in the United States for less than a year; some of that compensation, however, was spent in the United States. No breakdown of the regional destination of the money sent home is available for 2009, but in 2003, by BEA's estimate, about two-thirds of personal transfers went to countries in the Western Hemisphere, one-quarter went to countries in Asia and the Pacific, and the rest went to countries in Europe and Africa. BEA also reports that, in 2009, migrants' capital transfers (that is, individuals' transfers for themselves, as opposed to transfers to others) amounted to nearly $3 billion on net.

BEA estimates outflows of personal transfers on the basis of four characteristics: the size of the foreign-born population (differentiated by duration of stay in the United States, family type, country of origin, and sex), the percentage of the foreign-born population that remits, the income of the foreign-born population, and the percentage of income that the foreign-born population remits.

No information is publicly available on flows of migrants' remittances from the United States to specific regions or countries. Such details are available only for a category that BEA calls "net private remittances and other transfers," which measures outflows minus inflows (rather than outflows only) and includes institutional remittances by U.S. nonprofit organizations as well as a variety of other minor transactions. For 2009, BEA reports net private remittances and other transfers of $74 billion and net compensation of nonresident employees of nearly $8 billion, for a total of $82 billion in net outflows. That figure represented about 0.6 percent of total U.S. gross domestic product (GDP) in 2009. About 40 percent, or $33 billion, went to other countries in the Western Hemisphere. Another $17 billion was sent to countries in Asia and the Pacific, $9 billion flowed to countries in Europe, and $5 billion was transferred to countries in Africa.

Effects in Recipient Countries (Exhibits 5 and 6)

Remittances can have both positive and negative effects on the economies of recipient countries. The transfers provide a country's economy with foreign currency, help finance imports, improve the balance of payments in its international accounts, and increase national income. However, the migration that generates remittances also reduces the labor force of the country of origin, and remittances may reduce the remaining family members' incentive to work. The available evidence suggests that recipients with income below a threshold level tend to use remittances primarily for consumption, including, for instance, purchases of food, consumer goods, and health care. In surveys of people in the United States who remitted money to Mexico, for example, 70 percent reported that consumption was the only purpose, 3 percent reported that asset accumulation was the only purpose, and 26 percent said that both consumption and asset accumulation were reasons for remitting. Nevertheless, evidence from some developing countries suggests that households in those countries tend to save a larger portion of income from remittances than from other sources of income, providing a source of capital for investment.

Concurrent with the overall increase in global remittances has been a decline in the fees charged by financial institutions to make those transfers. Between 2001 and 2009, the fees charged to transfer $200 to six countries in Latin America declined by an average of at least 3 percent per year (for Haiti) to 10 percent per year (for Colombia), possibly because of lower transaction costs resulting from technological progress and more awareness among migrants about alternative ways to remit.

Remittances to Mexico (Exhibits 7 to 9)

Mexico is the destination of the largest amount of remittances from the United States. According to BEA's estimates, of the $33 billion (net) transferred from the United States to people in other countries in the Western Hemisphere in 2009 or earned as compensation by short-term migrants, about $20 billion was identified in the international economic accounts as going to Mexico; by BEA's estimates, such flows from the United States to Mexico (adjusted for inflation) rose by an average of 2 percent per year between 2000 and 2009. The Banco de Mxico estimates that all gross inflows of funds from abroad—not only from the United States—were about $22 billion in 2009. (The bank does not estimate outflows.) Estimates from the Banco de Mxico indicate that all gross inflows (adjusted for inflation) rose by an average of 11 percent per year during the past decade.

The difference between BEA's and the Banco de Mxico's estimates could stem not only from differences in definitions but also from differences in methodology and source data. Beginning in 2003, all Mexican banks and money transfer companies were required to register with the Banco de Mxico and to report monthly remittances by state. (Prior to that rule change, the Banco de Mxico inferred remittances from a 1990 census of different Mexican financial institutions.) In addition, around that time, the "matricula consular"—an identification card issued by the Mexican government to Mexican nationals living outside of the country—began to be accepted for opening bank accounts in the United States; that change may have helped facilitate money transfers to Mexico in a way that allowed the Banco de Mxico to better record them. Finally, the Banco de Mxico also conducts a border survey that asks returning migrants about cash and goods that they are bringing to relatives in Mexico. With the apparent increased use of more formal channels to transfer money between the United States and Mexico and those border surveys, the official Mexican statistics are recording cash transfers not captured in the past.

Global Flows of Remittances (Exhibits 10 to 13)

According to the International Monetary Fund, total inflows of remittances globallythe sum of personal transfers, compensation of employees, and migrants' capital transferswere about $407 billion in 2008 (in nominal dollars), up from about $150 billion in 2002, an average increase of 18 percent per year. About two-thirds of global inflows was sent as personal transfers, about 30 percent was recorded as compensation of employees, and about 5 percent stemmed from migrants' capital transfers. Although total inflows and outflows of global remittances should be equal, total recorded outflows—about $289 billion in 2008—are generally much lower than total recorded inflows. The discrepancy between total inflows and total outflows underscores the deficiencies of remittance data, which are collected or estimated in different ways in different countries. Even when remittance data are collected directly, discrepancies arise because of the use of informal channels for transfers of funds as well as the misclassification of remittances as tourism receipts, trade receivables, or deposits.

Total inflows of remittances constitute a small fraction of global economic activity, amounting to about 1 percent of total gross domestic product in 2008. For a number of countries, however, such funds constitute a substantial source of income: For at least six countries in Latin America and the Caribbean, total inflows amounted to more than 10 percent of GDP. Further, for a number of countries, total inflows were more than double total foreign direct investment in 2008.