Mexico: Remittances Hurting Local Economic Development?

Each year Mexicans in the United States send billions of dollars in remittances back to Mexico. In 2006, Mexicans working north of the border sent back US$23 billion. Remittances have become (after petroleum) the second highest legal source of income for Mexico. And that’s one of several reasons why Mexican leaders don’t want emigration to end.

But are these billions of dollars really helping Mexico?

You might think so, but if you look at the Mexican regions that receive high levels of remittances, they’re not exactly booming economically.

Take for example Michoacan, President Felipe Calderon’s home state. That state is the highest recipient of remittances, with 11.2 percent of its families receiving them. Nevertheless, Michoacan is still one of the more economically undeveloped states in Mexico. Other high-remittance receiving states have also failed to develop.

The United Nations Population Fund (UNFPA) did a study of the phenomenon, and according to spokesman Alfonso Sandoval the study determined that remittances in Mexico are not developing the country economically.

Most of the remittance money is spent on groceries or daily expenses, buying fancy vehicles, or remodeling houses. But little of it is being invested in permanent job-generating enterprises. Therefore the regions aren’t advancing economically.

Remittances also encourage some Mexicans not to work, since they can earn more from remittances than working on a Mexican job.

Mexico’s central bank, the Banco de México, has examined this issue. A 2005 study by the bank showed negative correlation between remittances and development. In other words, the more remittances the less development!

This is one that I have been sitting on for a few days trying to wrap my brain around as to whether or not I believe it. If I could summon Noel Maurer, Carlos Yu, and Doug Muir to comment, I would. I really don't know enough to make meaningful contributions here, but damned if I am not curious.