The very word “remittance” has a musty sound. People who experienced mail orders before credit cards may remember a note from Sears or Montgomery Ward asking us to “please remit an additional $2.79.”
Or we may think of “remittance men,” those stock British literary characters who had disgraced their families but got a monthly stipend from home as long as they stayed far away in Italy, Spain or Malaysia.
While the word remittance still refers to any payment of money, especially across long distances, for economists it is a category in national balance of payments accounts for miscellaneous transfers by individuals.
Remittances usually are between family members, from one person working in a higher-income country to a relative in a lower-income country. In a grand economic scheme of things, they are of minor importance to industrialized nations. They can be of huge importance to developing countries, however.
For example, a recent report by the Inter-American Development Bank found that some 10 million Latin Americans living in the United States send about $30 billion home each year. Others living in Europe and Asia send another $8 billion. That $38 billion sent by individuals is greater than all the direct foreign investment in Latin America plus all foreign aid to the region.
The absolute amounts sent are largest for the region’s two largest countries, Mexico and Brazil, which receive $13 billion and $5 billion respectively. In relative terms, however, such payments are of greatest importance to smaller, poorer countries in Central America and the Caribbean.
Cuba, the Dominican Republic, El Salvador and Guatemala all get $1 billion to $2 billion in total transfers to individuals. In percentage terms, such remittances are about 4 percent of gross domestic product for Cuba, the Dominican Republic and Guatemala. For El Salvador the figure is nearly 8 percent.
While the dollar amounts sent to Mexico and Brazil are several times larger, they represent only 1.4 percent and 0.4 percent of output in those larger economies.
If one looks at remittances compared to export earnings, the importance of such flows is even starker, ranging from 8 to 9 percent for Brazil and Mexico to 77 percent for El Salvador and Guatemala. For these two Central American nations, money sent home by their citizens working abroad is nearly as important as all their international sales of goods and services.
An estimated $147 million comes from Minnesota, just under $1,900 for each Hispanic immigrant, legal or illegal, working here. Given the low wages of many of them, such transfers represent a significant portion of their earnings.
Some people fret that such transfers hurt the United States. The $30 billion sent from the United States to Latin America is not money lost. It will all come back in purchases of U.S. exports or as investment in U.S. stocks and bonds. More importantly, it represents only a fraction of the value generated by immigrant labor in our country.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.