Title: Workers Remittances in Mexico
1Workers Remittances in Mexico
February 20th, 2006
2Index
- IMPORTANCE
- SOME FEATURES OF REMITTENTS AND BENEFICIARIES
- CURRENT REGULATION AND INTERNATIONAL TRANSFER OF
FUNDS Agreement Banco de México Federal
Reserve Bank - IMPACT OF REMITTANCES IN THE ECONOMY
- DESTINATION OF REMITTANCES
- REMITTANCES AND ECONOMIC DEVELOPMENT
- FINAL COMMENTS
3I. Importance (Total income)
- During 2004 remittances totaled US16.6 billion
and US20 billion in 2005. These figures
represent respective annual increases of 24 y
20.6.
Workers Remittances (Million US dollars 2005 -
2005)
Workers Remittances (Million US dollars 1995 -
2005)
4I. Importance (Evolution in the Last Decade)
- Workers remittances have been very dynamic in
recent years. In 1995-2000 remittances grew at an
annual rate of 12.3, whereas in 2000-2005 they
did so at a rate of 23. - The rapid increase of recent years stems from a
better statistical coverage, as well as from the
growth of such flows. However, an increase in the
number of migrants and decreasing transfer costs,
also explain this behavior.
Inflows from workers remittances
N.S Not significant.
Transfers of goods and cash.
5I. Importance (Number of Transactions and Average
Amount
- The number of remittances transactions has also
shown a significant increase. Such number went
from 11.3 million transactions in 1995, to 18
million in 2000 and 58.7 million in 2005. For the
last four years, the average remittance has
remained in a rank between 320 and 341 dollars.
Inflows from Remittances
(Amount, number of transactions and average
remittance)
1/ Millions of US dollars.
2/ Thousands of transactions.
3/ Dollars.
6I. Importance (Remittances Instruments)
Inflows from Remittances
(Percentage structure)
2005
1995
2000
2001
2002
2004
Total Remittances
100.0
100.0
100.0
100.0
100.0
100.0
Money Orders
39.7
21.8
9.0
7.0
11.3
9.3
Checks
0.7
0.1
0.1
0.1
0.0
0.0
Electronic Transfers
51.5
70.6
87.5
89.6
87.3
89.3
Direct Transfers
8.1
7.4
3.4
3.3
1.4
1.4
Inflows from Remittances (Percentage Structure by
Instrument)
- The share of electronic transfers has raised in
recent years. This, due to technological change
and an increased competition among the various
intermediaries, who have been looking for more
efficient electronic instruments that allow them
to offer lower prices, as well as more safety and
speed. - The quality of remittances statistics is
supported in information originated 99 in
accounting records from banks and fund transfers
firms. The remaining 1 consist of direct
transfers captured by means of the International
Travelers Survey, also applied by Banco de
México.
7I. Importance (Remittances and Other Inflows of
the External Accounts)
- The amount of remittances received by Mexico is
very high when compared with other inflows of the
external accounts.
Workers Remittances (Percentages in 2005)
8I. Importance (Workers Remittances as a
Percentage of GDP)
- Remittances went from 0.9 percent of GDP in
1990-1994, to 1.2 percent in 1995-2000, only to
increase significantly to 2.6 en 2005.
Workers Remittances ( del GDP)
9I. Importance (Workers Remittances by Mexican
State)
Workers Remittances by Mexican States in 2005
Figures in brackets refer to the share of
each state in the total remittances.
10I. Importance (Workers Remittances an
International Comparison)
- During 2004 Mexico ranked third among the main
remittances recipient countries.
Workers Remittances in Various Countries in 2004
Source Banco de México (for Mexico) and
International Monetary Fund.
1/ Data obtained from the respective country.
e/ Estimated figures of the World Bank.
11I. Importance (Transfers Cost from Mexico to
the US)
- In recent years the costs of money transfers to
Mexico has been reduced. The main factors that
explain such reduction are - The rapid growth of the US population of Mexican
origin. - More information available about the costs of the
various intermediaries, as well as an increased
competition among them. - The greater use of international electronic
transfers has allowed money remittances to become
quicker and safer.
Total Cost of Money Transfers from the U.S. to
Mexico of an
Average Amount of US300 Dollars from a Sample of
Firms by City of Origin
(US Dollars per Transfer)
12Index
- IMPORTANCE
- SOME FEATURES OF REMITTENTS AND BENEFICIARIES
- CURRENT REGULATION AND INTERNATIONAL TRANSFER OF
FUNDS Agreement Banco de México Federal
Reserve Bank - IMPACT OF REMITTANCES IN THE ECONOMY
- DESTINATION OF REMITTANCES
- REMITTANCES AND ECONOMIC DEVELOPMENT
- FINAL COMMENTS
13II. Some Features of the Sender and the Recipient
of Remittances
- Surveys compiled by Banco de México in northern
border cities from Mexican migrants living in the
US who were planning to spend some days in
Mexico, provide information on the following - Remittances to relatives and sending frequency.
Around 80 of those interviewed said that they
used to send money to their relatives in Mexico
on a regular basis, and that they used to do it
10 times a year. - Relatives in the U.S. and arrival to that
country. Four out of five respondents who send
remittances stated that they already had
relatives in the U.S. when they first arrived,
most of them said they used to live with them at
arrival. - Beneficiaries of remittances. Two thirds of
remitters (65) said that the main recipients are
their parents (well above wife and children),
followed in frequency by wife (14) and siblings
(9). However, the highest average amount
corresponds to the wife. - Recipients other sources of income. Almost half
of the remitters surveyed said that their
beneficiaries have additional sources of income.
14II. Some Features of the Sender and the Recipient
of Remittances
- Gender of the Remittent. More than 90 percent of
the remitters who were surveyed were men. - Visit and Amount of the Transfer. When migrants
visit their relatives in Mexico, they normally
deliver a bigger amount of money than the one
they use to send on a monthly basis. - Average Remittance and Income of the Worker. As
expected, the survey shows that the average
amount of the remittance is directly related to
the workers income. - Income and Academic Level of the Remittent.
Ranked by their income, the academic level of the
worker increases (also the average monthly
remittance). - Years of Residence and Average Remittance. With
age and years of residence abroad, the average
remittance tends to decrease, meaning that, with
time, workers generate increasing economic
commitments in the United States. - Use of Remittances. According to the responses,
the main use of the remittances is consumption.
However, almost half (44) of those who were
surveyed stated that their beneficiaries have
used part of the resources they receive to
improve or to buy a house.
15Index
- IMPORTANCE
- SOME FEATURES OF REMITTENTS AND BENEFICIARIES
- CURRENT REGULATION AND INTERNATIONAL TRANSFER OF
FUNDS Agreement Banco de México Federal
Reserve Bank - IMPACT OF REMITTANCES IN THE ECONOMY
- DESTINATION OF REMITTANCES
- REMITTANCES AND ECONOMIC DEVELOPMENT
- FINAL COMMENTS
16III. Current Regulation
- Banco de México has legal power to regulate fund
transfer services carried out by financial
institutions and any other agent professionally
involved in such activity. - On October the 28th 2002, a set of rules were
issued instructing all firms dedicated to the
service of funds transfers to provide monthly
information on the amounts and volume of
remittances sent to Mexico, classified by Mexican
recipient state. - The rules were issued with the following goals
a) to create a register of firms dedicated to
money transfers, b) to standardize the
information received, and c) to produce
information at a national level and state level.
17III. Current Regulation (Banco de México
Federal Reserve Bank Agreement)
- There is an agreement between the Federal Reserve
Bank of the United States and Banco de México to
connect their respective system of payments
(Automatic Clearance). By this agreement, banks
can transmit and receive payments in a way
similar to the one they use in their countries. - The system is useful for payments that can be
programmed, such as workers remittances,
pensions, payroll, etc. - This project is called Direct to Mexico.
18III. Current Regulation (Banco de México
Federal Reserve Bank Agreement)
- The US Government has been sending payments since
October 2003. - Starting February 2004, commercial payments from
the United States to Mexico have been processed
from particulars (remittances and payments made
by firms). - Goal To develop a system that allows
trans-border bidirectional transfers between
deposit institutions of the United States and
Mexico.
19III. Current Regulation (Banco de México
Federal Reserve Bank Agreement)
- The infrastructure allows for multilateral
transfers transfers originating in any deposit
institution in the United States (Mexico) to any
deposit institution in Mexico (United States). - The system is open for banking clients in the
United States (for payments to Mexico). - There is a widespread joint promotional campaign
by Banco de México, the Mexican embassy and
consulates in the United States and the Federal
Reserve Banks.
20Index
- IMPORTANCE
- SOME FEATURES OF REMITTENTS AND BENEFICIARIES
- CURRENT REGULATION AND INTERNATIONAL TRANSFER OF
FUNDS Agreement Banco de México Federal
Reserve Bank - IMPACT OF REMITTANCES IN THE ECONOMY
- DESTINATION OF REMITTANCES
- REMITTANCES AND ECONOMIC DEVELOPMENT
- FINAL COMMENTS
21IV. The Impact of Remittances in the Economy
- Remittances improve significantly the welfare of
the recipient families. In Particular - Remittances have a positive effect on their level
of income and, therefore, also on consumption and
investment - they soften their consumption pattern over time
and. - They allow the families an increased consumption
of basic products.
22IV. The Impact of Remittances in the Economy
- Remittances are an important source for the
formation of physical and human capital - by increasing the consumption of basics of the
recipient families, their health conditions
improve - children in recipient households have higher
academic levels than those in similar non
recipient households - It is estimated that remittances are responsible
for almost 20 of capital invested in urban
micro-business firms and, - Recipient households gain access to capital by
formalizing their relations with financial
institutions and therefore, reduce their
effective financial costs.
23IV. The Impact of Remittances in the Economy
- Workers remittances enhance macroeconomic
stability - A higher level of remittances allows for an
increase of the domestic expenditure without
facing major external imbalances. - By increasing the current account revenues,
remittances help improve the financial position
of the economy and, as a consequence, also
improve the credit conditions the country faces
in international markets.
24IV. The Impact of Remittances in the Economy
- Remittances represent a growing share of private
consumption, 3.6 in 2004.
Workers Remittances (Share of Private
Consumption and Millions of US Dollars)
/ Figures for 2005 were calculated based on
information of the third quarter.
25IV. The Impact of Remittances in the Economy
- Based on a hypothetical exercise, it is estimated
that - Without remittances, per capita private
consumption in 2004 would have been almost 3
smaller than the one observed and, - GDP growth could have been smaller than observed
by 0.3. - Of course, these impacts are more significant in
those states in which the remittances recipient
families are concentrated.
26Index
- IMPORTANCE
- SOME FEATURES OF REMITTENTS AND BENEFICIARIES
- CURRENT REGULATION AND INTERNATIONAL TRANSFER OF
FUNDS Agreement Banco de México Federal
Reserve Bank - IMPACT OF REMITTANCES IN THE ECONOMY
- DESTINATION OF REMITTANCES
- REMITTANCES AND ECONOMIC DEVELOPMENT
- FINAL COMMENTS
27- V. Destination of Remittances
- Most of remittances are used by households for
consumption expenditure, including education
expenditure. Part of such resources are used for
acquisition and improvement of housing. - The results of the questionnaire applied by INEGI
to 10 of Mexican households show that - The share of Mexican households with electrical
appliances (radio, TV, video recorders,
refrigerators, washing machine, etc.) is higher
in households that receive remittances than in
those that do not receive such transfers. - In 2000, 83 of households receiving remittances
owned the house where they lived, whereas the
proportion was 78 for households that did not
receive such transfers
28Index
- IMPORTANCE
- SOME FEATURES OF REMITTENTS AND BENEFICIARIES
- CURRENT REGULATION AND INTERNATIONAL TRANSFER OF
FUNDS Agreement Banco de México Federal
Reserve Bank - IMPACT OF REMITTANCES IN THE ECONOMY
- DESTINATION OF REMITTANCES
- REMITTANCES AND ECONOMIC DEVELOPMENT
- FINAL COMMENTS
29- VI. Remittances and Economic Development
- Studies regarding worker remittances impact have
found that those resources are mainly used to
finance consumption, as well as to increase human
capital (education and health expenditure). Only
a small portion of remittances are oriented
towards investments such as the improvement or
acquisition of a house or to establish a small
business. -
- Investment in human and physical capital has a
direct impact on economic growth, while
consumption expenditure affects GDP indirectly
through aggregate demand.
30VI. Remittances and Economic Development
- Two factors have limited remittances to be
channeled to investment expenditure 1) the low
portion of such remittances that is left
available to finance investment expenditure and
2) the lack of managerial culture on the side of
remittances recipients. - Some studies have found that remittances dampen
revenue falls during economic crisis, reducing
family income volatility. - Evidence also suggests that members of recipient
households have less incentives to search for
alternative sources of income.
31Index
- IMPORTANCE
- SOME FEATURES OF REMITTENTS AND BENEFICIARIES
- CURRENT REGULATION AND INTERNATIONAL TRANSFER OF
FUNDS Agreement Banco de México Federal
Reserve Bank - IMPACT OF REMITTANCES IN THE ECONOMY
- DESTINATION OF REMITTANCES
- REMITTANCES AND ECONOMIC DEVELOPMENT
- FINAL COMMENTS
32VII. Final Comments
- A number of factors have stimulated Mexican
migration to the United States - Rigidities in the labor market.
- A poor dynamic creation of well paid jobs in the
formal sector. - A high and increasing number of Mexicans with
family ties in the United States, which cheapens
migration. - It is reasonable to expect that a significant
contraction of wage differentials between Mexico
and the United States will take a long time to
make migration less attractive to Mexican
workers. - Migration to the USA shows the need for pending
structural changes that would widen opportunities
for productive and well paid jobs in Mexico.
33VII. Final Comments
- On the other hand, the positive effects of
Mexican migrants remittances on the welfare of
recipient families, must be stressed - Remittances have helped to reduce poverty in
significant segments of the population - They have enhanced improvements in health and
education for recipient families - Have provided families with better financial
conditions and, that way their consumption
patterns have been softened and they have also
been able to invest in micro-business firms.