Transcript The Untold Story: Remmitances, Migration and BP in México

The Untold Story:
Remmitances, Migration
and BP in México
Jesús Muñoz*
* Jesús Muñoz holds a PhD in Economics from the
University of Lancaster, United Kingdom. He has
been a full time researcher in Universidad
Michoacana de San Nicolás de Hidalgo in Morelia,
Mexico, the world capital of remiittances.
Abstract
This paper describes the growing relevance of Mexican
migration of Mexican citizens into the US and especially that
of remittances in Mexico, particularly during the most recent
years. Remittances have had a positive effect in the Mexican
economy. But this is only half of the story as it is
immediatley described.
The role of remittances
Remittances, the main by-product of migration according to the
Mexican view, are shock absorbers, as theye are reghsietres in
the Current Account (CA) of the Balance of Payments (BP),
according to the current classification scheme of Banco de
México.
Remittances, hence play a key role in foreign exchange
stabilisation o even in the prevention of currency crises in
Mexico, as they are considered as net exports. This is of
course due to BP must be balanced in order to achieve
foreign exchange stability in developing countries.
Remittances and BP in Mexico
BP = CA + KA + R
CA: Revenues
Non factorial services
Travellers
Factorial services
Interests, Other
Transfers
Family remittances
Other.
The stabiliser role of remittances
The Mexican CA has registered deficits since 1995, but
remittances (about 92% out of transferencias) have
hampered this effect. Remittances actually reduce
pressures on reserves and supplement the stabiliser
short-term effects of deflationary policies on inflation,
interest rates and the exchange rate. This has been
happening during the last two years.
The CA deficit in Mexico
The Mexican CA registers deficits as imports are
greater than exports, since the latter lack progress in
terms of both diversification and competitiveness.
Remittances in Mexico
Mexico is the main receiver of remittances in the world
and they are the second source of revenues form
abroad for this country (after oil revenues, which
represent about 81% of GDP). Although remittances
only represent 1.9% of GDP. Their impact is hence
qualitative.
We export people who send $
home
The relevance of remittances
has been growing at a growing rate
during the most recent years, especially
since 1995, more than other items in CC or
those of KA . This is due, of course, to
that in a free exchange regime reserves
are irrelevant (Graph 6).
Remittances during the most
recent years
Thousands of Dollars
Graph 1: Fam ily Re m m itance s
4. 000. 000
3. 500. 000
3. 000. 000
2. 500. 000
2. 000. 000
1. 500. 000
1. 000. 000
500. 000
0
1
4
7
10 13 16 19 22 25 28 31
Quarte rly data: 1996-2003
Source: Banco
de México, 2004
Exports
Thousands of
Dollars
Graph 2: Exports
50. 000. 000
40. 000. 000
30. 000. 000
20. 000. 000
10. 000. 000
0
1
4
7 10 13 16 19 22 25 28 31
Quarterly data: 1996-2003
Source: Banco
de México, 2004
Comparisons: Exports vs.
%
Graph 3:  % in Exports
10
1
4
7
10 13 16 19 22 25 28 31
-40
Q uarte rly data: 1996-2003
Remittances in figures
Graph 4:  % in Remmitances
40
%
20
0
-20 1
4
7
10 13
16
19 22
25
-40
Q uarte rly data: 1996-2003
28
31
Stability in BP
%
Graph 5:  % in BP
10
1
4
7
10
13
16
19
22
25
-40
Q u arte rl y data: 1996-2003
28
31
Remittances after the currency
crisis of 1994
Graph 6: Workers' remmitances
Millions
of Dollars
20000
15000
10000
5000
0
1
2
3
4
5
6
7
Yearly data: 1995-2004
8
9
10
Remittances are
obviously
the
most
straightforward
consequence of
migration
Causes
Providing information
and
protection,
eliminating
entry
barriers
and
transaction costs
Macroeconomic consequences
VISION 1: Remittances possess
separate causes and consequences,
having a negative impact on national income.
They generate moral hazard, due to the
existence of asimmetry and imperfect
information in their markets
(Ketkar, 2003).
Remittances and the financial
system
VISION 2: An inefficient banking
system blocks the allocation of
remittances, so that they do not become into
investment. The banking system must be modified
in order to solve this problem, where migration and
and remittances are a twin problem, reflecting
development levels and the extent of economic
liberalización (Dimsky, 2003). This circle can become
a virtous once the financial system achieves
someadvances.
The allocation of remittances
The liberalisation of KA is at
the
heart
of
financial
liberalisation, but may entail
some
risks.
The
securitisation of future flows
may increase investment and
available
funds
in
international capital markets
for Mexico. The consolidation
of financial supermarkets
would contribute to this goal.
Positive impact of remittances
Initially, only
bancarisation may increase the
productive investment arising from remittances.
Remittances prevent eventual
reductions of currencies and hence they
delay the impact of currency crisis. If they are used
efficiently they may enhance the development of
regional communities, especially those of
migrants, for example in Michoacán,
Zacatecas or Guanajuato
Workers’
world
remittances
in
the
Table 1
Years
Millions of
dollars
1970-74
1,456
1975-79
11,958
1980-84
23,352
1985-89
25,549
1990-94
42,967
1995-98
59,402
Source: World
Bank, 2005
Remittances by country of
destination
Table 2
Country
% GDP
Líbano
34.8
El Salvador
5.9
Dominican R. 3.8
Honduras
2.1
México
1.9
Guatemala
1.8
Costa Rica
1.2
India
1.1
Perú
0.6
Source: World
Bank, 2005
Remittances by country of
destination
Table 3
Mill. Dollars
% GDP
México
13,266
1.9
India
8,317
1.8
Spain
3,958
0.5
Paquistan
3,554
5.7
Morocco
3,261
9.6
Portugal
3,224
2.4
Egypt
2,983
3.4
Bangladesh
2,848
6
Source: World
Bank, 2005
Negative impact of remittances
Remittances must bring about negative growth. Their
apparent positive short term impact differ from their
long term effects. An economy sending labour abroad
may lose dynamism in certain regions, for instance
Huandacareo is a ghost town a well as its neighbouring
regions.
The analysis of remittances must not
be either temporary or superficial.
Negative consequences of
remittances
Remittances must only be a
temporary macroeconomic
solution.
Reliance
on
remittances as a capital
item may reduce incentives
for reducing the deficit
between
imports
and
exports
or
even
for
enhancing both direct and
portfolio investment.
In
microeconomic
terms, a damage may
be
caused
on
competitiveness, as it
must grow in Mexican
exports
of
goods,
rather than in people
expelling. There is a
danger of a vicious
circle.
Remittances as investment
The communities of origin must benefit from
remittances in the long term, rather than creating ghost
towns. This can only be achieved through productive
investment. In addition, the attitude of he US towards
migrants may become harsher in the medium term,
especially in future governments.
Socioeconomic consequences of
migration
Remittances
obvioulsy
impact employment levels,
but may also enhance
leisure or over reliance on
them in the communities of
origin. This kind of problems
is teh result of surveys and
field studies about the role
of remittances in certain
rural and urban communities
in Michoacán.
A sloution may be the
liebralisation of the labour
market in Mexico and the
US. Actualy NAFTA has
proven to have a negative
impact on the Mexican
farming sector, as it is
demonstrated
by
the
growing migration levels.
Remittances levels are
larger in both cities or
communities
with
low
(dual) development levels,
in
Zacatecas
and
Guanajuato, for example.
Conclusions
Under low income levels, migration overshoots, but must
be reduced in the long term through the enhancement of
investment (in the Keynesian sense).
Rather than enhancing remittances,
employment must grow in a systematic
fashion.
Thus, remittances have an impact upon GDP, consumption,
employment, inflation, exchange rate and competitiveness.
Conclusions
Only if remittances have a larger impact upon financial
investment may instead be considered as a part of the
capital account. As a consequence their role in the
Mexican economy would be superior: as a shock
amplifier in the long term.
An unexplored topic is the identification of the paths of
existing workers’ networks. Examples are that from
Michoacanos to Los Angeles, Texas and Chicago, or that
from Oaxaquenos and Poblanos to New York, as well as the
current growing migration levels to North Carolina.
NOTE: Bibliography about
field studies and surveys as
well as that on specific problem
of remittances in México are
included in the main paper.