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By Lora Mwaniki-Lyman, Vera Pavlakovich-Kochi, Ph. D., and Nguyen Ho
Introduction
The U.S. led global recession has drastically affected the amount of money immigrants from Mexico in the United States send back home. For the first time in more than a decade, growth in remittances from the United States to Mexico declined between 2007 and 2008. Remittances to Mexico dropped by 3.6 percent to about $25.1 billion in 2008 from their peak of $26.1 billion in 2007. This decrease is in contrast to the annual over-the-year increases reported in prior years (Exhibit 1). Remittances used to increase at an average rate of 21.3 percent annually between 2000 and 2007.
This 2008 decline in remittances did not diminish the importance of remittances to Mexico. It is the second highest foreign exchange earner in Mexico after oil, followed by maquiladora1 exports.
($millions) and year-over-year change
Source: Banco de Mexico, Las Remesas Familiares en 2008, Enero de 2009
Remittances to Border States
According to data from Banco de México, Sonora received 318 million U.S. dollars, ranking it 24th out of 32 states listed. Sonora’s remittances declined 5.2 percent from the previous year, far more than Mexico’s 3.6 percent average decline. The six border states in Mexico combined received over 2.2 billion U.S. dollars, about 9.1 percent of all remittances to Mexico, which is a relatively small share (Exhibit 2). Researchers at the Federal Reserve Bank of Dallas2 suggest that the northern states are probably not the origin of most low-skilled Mexicans immigrants in the U.S. since they are among the wealthiest states in Mexico. In addition, the chances of informal money transfers not measured by Banco de México are higher among border states as border crossers can easily carry money back home with them. Three of the six Mexican border states reported a decline in remittances in 2008 with Sonora accounting for the second largest decline after Nuevo León (-7.7 percent).
$342 |
1.4% |
5,595,760 |
$61 |
$318 |
1.3 |
2,473,678 |
$129 |
$475 |
1.9 |
1,661,813 |
$286 |
$300 |
1.2% |
2,648,330 |
$113 |
$331 |
1.3% |
1,267,087 |
$261 |
$512 |
2.0% |
6,960,799 |
$74 |
$2,278 |
9.1% |
20,607,467 |
$154 |
$22,867 |
90.9% |
65,467,584 |
$349 |
$25,145 |
100% |
106,682,518 |
$235.70 |
Source: Banco de Mexico, Las Remesas Familiares en 2008, Enero de 2009 and Consejo Nacional de Poblacion (CONAPO)
The economic importance of remittances by immigrants with family ties in Mexico is substantially high. It translates to an annual income of $235.70 per Mexican resident in 2008 dollars. Compared to 2007, this is a decline in income of about $11 per person in 2008. States in central and western Mexico benefit more from remittances with Michoacán topping the list in 2008 with an annual remittance of $2,186.27 per resident.
While the economy in Mexico is highly influenced by fluctuations in the U.S. economy, the rapid increase in remittances to Mexico prior to the 2007 recession cannot be fully explained by normal economic forces, such as increases in the Mexican immigrant population in the U.S., rise in income levels, prior recessionary periods, exchange rate variations or strength of cross border social relations. The Federal Reserve Bank of Dallas’ research team attributes the increases primarily to declines in money-transfer costs and the new techniques used by Banco de México to measure the remittances.
Declines in the cost of transferring funds over the years are a result of increased competition by new entrants to the transfer system. This has lowered service fees and improved technologies in the formal transfers of funds. The use of Matricula Consular identification (MCAS) cards as an acceptable form of identification in addition to immigrants becoming more aware of transfer options has lead to the increases in formally transmitted remittances and reduced the amount of money sent to Mexico using informal methods.
The decline in remittances to Mexico in 2008, for the first time in over a decade, is mostly attributed to the severe economic downturn in the U.S., especially in the construction and service sectors where most immigrants have sought employment. A study by the University of Arizona Udall Center,3 identified the top three industries where immigrants worked in 2004 as Agriculture & Forestry (35.2 percent), Construction (18.6 percent), and Leisure & Hospitality (14.9 percent). As employment opportunities have dwindled so has the number of immigrants from Mexico securing jobs and crossing to the United States for work. This has also been reflected in the volume of non-documented immigrants attempting to cross the border. In 2008, the number of apprehensions made by the Border Patrol declined by more than 64 percent from their mid-decade peak of 1,189,000 in 2005 to 724,000. Analysts at the U.S. Department of Homeland Security, Office of Immigration Statistics4 attribute it to both the declining U.S. economic growth and enhanced border enforcement efforts.
While there is no record showing which states the remittances to Mexico are coming from, studies have linked flows of remittances from regions in the U.S. to migration patterns. A Working Paper by World Bank5 has linked remittances from immigrants in the Yuma and Tucson metro areas to Sonora, Mexico. However, the University of Arizona Udall Center’s study reported about 65 percent of immigrants in Arizona live and work in Maricopa County. In 2004, immigrants made up 14 percent of the Arizona workforce, contributing about $6.1 billion in income and $460 million in tax revenues. Immigrants from Mexico account for about 54 percent of immigrants in Arizona according to the 2000 Census. While immigrants from Sonora may still comprise the bulk of Mexican immigrants in Arizona, the flow of immigrants from other Mexican states has increased in recent years. Without better data it is difficult to gauge what geographical implications Arizona’s economic slowdown has had on Mexico through declining remittances. It is expected that remittances to Mexico from immigrant workers in the United States will lag behind the recovery of the U.S. economy and until job creation picks-up, remittances will remain low. As of July 2009, remittances to Mexico in the last seven months are 12.6 percent lower than remittances to Mexico from January to July of 2008. 
1 We use the term “maquiladora” to encompass other programs in Mexico in support of exportation to foreign markets.
2 Cañas, J., R. Coronado and P. M. Orrenius, “Explaining the Increase in Remittance to Mexico”, Southwest Economy, Federal Reserve Bank of Dallas, Issue 4, July/August 2007
3 Gans, J. Immigrants in Arizona: Fiscal and Economic Impacts, The University of Arizona, Udall Center for Studies in Public Policy, 2008.
4 Rytina, N. and J. Simanski, Apprehensions by the U.S. Border Patrol: 2005 – 2008, U.S. Department of Homeland Defense, Office of Immigration Statistics, June 2009.
5 The U.S.-Mexico Remittance Corridor: Lessons on Shifting from Informal Transfer Systems, World Bank Working Paper series.
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