Remittances

1
Remittances

• Lecture 9

2
Introduction

• Globalization has meant more than trade and
  finance. (What has it meant?)
• Migration represents a very important dimension
  in globalization, and family remittances
  specifically have constituted a major factor in
  integrating societies into global context
  economically and socially. (How has it been
  integrated?)

3
Introduction

• Because of migration Central America and
  Caribbean economies have gradually transformed
  themselves from agro-exporting economies to
  labor-exporting economies (Why labor-exporting
  economies?)
• Thus, migration has created linkages between
  Latin America migrants and their Latin American
  countries of origin.
• There is a growing interconnection influences by
  the flow of family remittances to Latin America.

4
Introduction

• Globalization Anthony Gidden defines it as
• the intensification (networks) of worldwide
  social relations which link distant localities
  (spaces) in such way that local happenings are
  shaped by events occurring many miles away and
  vice versa (circular migration) (199064).
• Ankie Hoogvelt (1997) suggest that were are
  experiencing deepening capitalist integration
  that takes place in three phases
• Global market discipline- is observe in the
  process by which economic agents dominant
  standards of price, quality, and efficiency in
  global scale and applying them to their domestic
  markets.
• Flexible accumulation through global webs- as the
  practice of carrying routine production via firms
  that create and maintain the networks around the
  world.
• Financial deepening- is the result of a growth in
  financial transactions that is higher that the
  growth of production and trade.

5
Introduction

• Recent studies have focus on the three measure of
  integration of labor markets in the global
  economy.
• Is the proportion of foreigners in the domestic
  workforce.
• Is the ratio of the domestic force in
  export-dependent industries and employed by
  domestic affiliates of foreign multi-national
  enterprises.
• Remittances that contribute to a home countrys
  GNP and provide it with valuable foreign
  exchange.
• In this case, they propose using the ratio of
  remittances to gross domestic product (GDP) as an
  indicator of integration.

6
Introduction

• Studies of three remittances have often focused
  on three issues
• The wealth- generating capacity of remittances
  through saving and investments.
• The factors influencing their flow.
• The effects of remittances in the recipient
  economies at the household level.
• What studies have concluded about remittances is
  that they have an important effects
• on economic growth,
• trade,
• the distribution of wealth in the home recipient
  country.
• Produces a different pattern of economic behavior.

7
Introduction

• Latin America economy has become more integrated
  through trade and investments.
• North American Free Trade Agreement (NAFTA)
• Southern Cone countries, MERCOSUR.
• Latin American Free Trade Area (FTAA)
• Central American Free Trade Agreement (CAFTA)
• However, Remittances has emerged as the leading
  economic indicator with the most potential.

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Family Remittances

• Latin American migration to the U.S. in the 1970s
  and 1980s have created new linkages between
• Individual-individuals (family)
• Towns-towns (Hometown associations)
• Cities-cities (Daughter Communities)
• Countries-countries (trade agreements)
• Regions-regions (CAFTA)
• Family remittances are currently one of the most
  important forms of linkage among emigrant Latinos
  and Latin America.

9
Family Remittances

• Researchers have focus on two aspects of the
  globalization of remittances
• Scope (Stretching)- are the agents in the
  circular migration such as market intermediaries,
  governments, hometown associations, international
  groups, and individuals.
• Intensity (Strengthen)- relates to the level of
  involvement of the previous agents in affecting
  the impact of remittances in the receiving
  country.
• In other words, the boundaries of spaces are
  stretched and already existing networks are
  strengthen.

10
Family Remittances

• How important are remittances in Latin America?
• The volume of remittances began increasing in the
  1980s.
• Mexico, El Salvador, Guatemala, Honduras, and
  Nicaragua remittances have increased from
• Nearly 1 billion in 1980 to 3.7 billion in 1990
  and over 10 billion dollars in 2000!!!!
• Just in Mexico alone remittances increased from
  800 million in 1980, to 2.4 billion in 1990,
  and to 6.5 billion in 2000.
• Or in Mexico represents 10 of the total value of
  exports nearly as much as tourism.

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Family Remittances

• How important are remittances in Latin America?
• Remittances in Latin America during 2002
  increased by 17.6 reaching over 32 billion.
• Latin America is now the number one destination
  for remittances worldwide.
• Remittances to every L.A. countries, except
  Bolivia increased by 10, in 2002,
• Colombia (28),
• Jamaica (27),
• Peru (24),
• Guatemala (23),
• Honduras (22),
• Cuba (22)
• Dominican Republic (16.9)
• EL Salvador (15.4)
• Nicaragua (15)
• Haiti (15)
• Ecuador (10)
• Brazil (10)

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Family Remittances

• How important are remittances in Latin America?
• In Nicaragua remittances represent ¼ of the
  national income.
• In El Salvador remittances have exceeded the
  total value of exports.
• In Dominican Republic and Nicaragua represent
  half of the values of exports, and about 80
  percent of the value of foreign direct investment.

13
Hometown Associations

• What is the function of HTA?
• Hometown Associations (HTA) or transnational
  migrant organizations (TMOS) are formed among
  remittance senders to coordinate their support
  not only of relatives but also of their towns.
• In addition, to retain a sense of community as
  they adjust to life in the United States.
• Immigrants have formed community groups to
  maintain relationships with the home country or
  with local communities.

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Hometown Associations

• HTAs international activities can be described
  in five groups
• Charity Orientations range from charitable aid
  to investment.
• Include the donation of cloths
• Construction materials for various projects such
  as church
• Small cash amounts to purchase goods for local
  activities.
• Infrastructure raise money for improvements for
  hometown
• Streets,
• Parks
• Build sewage treatment
• Water filtration plants
• Buy or maintain cemetery plots
• Health care facilities

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Hometown Associations

• HTAs international activities can be described
  in five features
• 3. Human development this activities are
  orientated toward human development.
• Scholarships
• Library books
• Health supplies
• Medicine
• Sports facilities
• Nursery homes
• Daycares
• Schools
• Communal soup kitchens
• Investment capital investment for
  income-generation projects managed by local
  community members and often supervised by
  immigrants.
• Coops
• Credit Unions
• Other General fundraising
• Soccer Games

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Hometown Associations

• HTAs international characteristics can be
  described in five features
• Activities Orientations range from charitable
  aid to investment.
• Charity
• Infrastructure
• Human development
• Investment
• Other
• Structure and links
• Lack of strong organizational structure
• Lack if institutional counterpart in their home
  country.
• Membership is small
• Connection is through a local leader such as
  priest.
• Relationships
• Hierarchical hometown associations communicate
  their counterparts what to do.
• Joint Cooperation both parties in the home and
  host country organization communicate to define
  the agenda. Ex. Hurricane Mitch support in 1998

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Hometown Associations

• HTAs international characteristics can be
  described in five features
• 4. Decision Making
• Financial resources
• Relationship with home organizations
• Members preferences
• Organizational structure
• Goal and project might change over time
• Membership available time
• Needs of the town in the home country
• 5. Financing
• Small economic base
• Most raise less than ten thousand dollars on
  overage each year
• Money raised is send in cash or materials.

18
Remittances Agents

• Who are the players in the Industry?
• Banks- In El Salvador, charge less than 10 for
  almost any amount to be sent but they do not
  have the same outreach capacity like Western
  Union.
• Courier agencies- Western Union or MoneyGram.
• In 1995, moreover 44 percent of money
  transactions through MoneyGram took place from
  the United States to Mexico.
• In El Salvador, Western Union carries out to a
  minimum of 70,000 transactions a month worth an
  average of 300.
• In the Dominican Republic, the minimum, thus
  likely controlling at least 20 percent of the
  flow of remittances.
• These companies charge significant fees, ranging
  from 8 to 14 of the value of the remittance.
• U.S. Postal Services- created its own delivery
  system offering a lower rate than Western Union
  or MoneyGram.
• Hand deliver
• Third party- encomenderos

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Remittances- Agents
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Remittances Agents-Host Country

• A money transfer business (one that can wire
  money to other countries) such as Seven-eleven.
• The transfer institution collects a fee.
• Transfer institution make a profit on the
• fee,
• commission and
• foreign exchange differential.

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Remittances-Host Country
22
Remittances Agents- Home Country

• Money transfer agencies establishes agreements
  with agent-distributions in Latin America in
  order to ensure coverage and efficiency on the
  receiving end.
• Commercial banks are one, if not the only, key
  player in a given market because their financial
  operations cover large area and meet regulatory
  requirements.
• In the case of Mexico, the largest distributing
  agents are large banks, such as Banamex,
  BBVA-Bancomer, HSBC, and BanNorte.
• In Central America, Airpak, works exclusively for
  Western Union.
• Grace Kennedy is Western Unions exclusive
  English Caribbean distribution

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Remittances Agents- Home Country

• Recipient country distributors also play a key
  role in the remittances.
• Distributors have made agreements with more than
  one company.
• Agents must compete to attract companies to
  utilize their networks, in so they influence the
  price.
• If they increase the fees it would affect the
  sender.

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Remittances Agents- Home Country

• Banks play a direct and indirect role in money
  transfers.
• Not only functioning as agents but,
• Serve as intermediaries,
• Operate as depositories for the money transfer
  companies and distributors agents.
• Bank also charged fees to keep money by the
  company or distributors agents.
• Can control prices, fees, and exchange rates.

25
Remittances-Government

• What is the role of government as a player in the
  remittances?
• As remittances become a more stable source of
  income for Latin America, its governments are
  finding ways to attract more of these funds.
• Government are making policies to address the
  cost reduction in remittance transfers but also
• Create an attractive economic environment for
  various kinds of migrant funds.
• Central Banks in Guatemala and El Salvador have
  regulations that are liberal on import duties.
• Salvadorans are allowed to bring up to 1500
  worth of merchandise.
• Guatemalans are permitted to bring up to 2000
  into the country without duty.

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Remittances-Government

• What is the role of government as a player in the
  remittances?
• Other countries have attempted to require that a
  certain percentage of the earnings of their
  workers abroad can be deposited into a national
  fund.
• Former U.S. Ambassador William Stixrud has
  suggested that Guatemalan emigrants put up the
  equivalent of 10 percent of the value of
  remittances for private investment.
• The Ambassador argues for the implementation of
  such a fund with the assistance of emigrants, the
  government, and international development
  organizations.

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Remittances-Government

• What is the role of government as a player in the
  remittances?
• Sending-country governments can also stimulate
  remittances by helping emigrant groups to develop
  migrant associations.
• The Mexican govt has had formal outreach
  programs since 1990.
• The federal programs include the Paisano program
  and the program the Mexican Communities Living
  Abroad (PCMLA).
• The PCMLA operates through the network of 42
  consulates and 23 institutes or Mexican cultural
  centers in the U.S.
• President Fox in 2000, created a new
  executive-branch office to interact more
  vigorously with Mexicans in the U.S. and attract
  their resources.
• By late 1998, four hundred clubs were operating
  throughout the U.S., although most were in Los
  Angeles and Dallas.

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Remittances-Government

• What are other programs establish to trap the
  remittances?
• Remittance bonds
• Joint Ventures
• Matching funds
• Economic development funds
• What do you think the countries should do with
  the remittances?

29
Sources

• Orozco, Manuel (2002). Globalization and
  Migration The Impact of Family Remittances to
  Latin America. Latin American Politics and
  Society 44(2) 41-66.
• IMF. 2003. Sending Money Home An
  International Comparison of Remittance Markets
  (see PDF released in February 2003)

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Migration Paper Observations

• Your paper is only as good as your research and
  resources
• What is your research question?
• Always exceed min. pages
• Citation APA style
• Lack of depth

• What are the push and pull factor
• You can mention more than 3 patterns
• Margins
• Introduce quotes
• Personal touch

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Announcement

• Come early on March 6!!!!!!!!
• Read Orozco article.
• No class on 3/8
• Native American Museum H.W. on 3/20