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The Importance of Remittance Payments

Economist German Zárate–Hoyos has published extensively on the impact of remittance payments on Mexican communities, including the 2004 volume, Remesas de los Mexicanos y Centroamericanos en Estados Unidos (Remittances From Mexicans and Central Americans in the United States). To Zárate–Hoyos, the project identifying concentrations of remittance payments represents just one application for a research agenda he has pursued for more than a decade and for which GIS technology has become an important tool.

Governments, international banks, lending agencies, and nongovernment organizations (NGOs) interested in creative development strategies are increasingly interested in remittance payments as a source of financing for grassroots economic development, especially in communities where poverty is so endemic that people migrate abroad to support their families. An understanding of the geographies of both migration and remittance payments is becoming an important component of development studies in the 21st century.

Remittances are broadly defined as all sums of money (either from current income or earlier savings) that are transferred by residents working abroad to their home country. Researchers use simple ratios to assess the relative macroeconomic importance of remittances. These ratios relate remittances to gross domestic product (GDP), exports, and imports. These ratios vary widely among countries, but they have grown dramatically in recent years.

For some countries, remittances can represent between 6 and 15 percent of GDP. Remittances can be equal to 30 to 50 percent of the value of exports, and between 10 and 33 percent of the value of imports. Compared with the volume of remittance payments, crude oil is the only commodity that generates a larger volume of money flows between countries each year. Coffee, the largest nonoil primary commodity in world trade, generates considerably less. In fact, in 2003 total remittance flows of $140 billion were substantially larger than all net foreign direct investment (FDI), which amounted to $86 billion and all government and other aid of $33 billion to less developed countries—combined.

Because the United States is one of the major migrant recipient countries, the flow of remittances from the United States to Latin America has become a subject of great interest to international financial institutions. In May 2001, the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IDB) organized the first Latin American and Caribbean regional conference on remittances as a development tool. This event was followed by several other conferences across the region aimed at documenting the growth of remittances, promoting lower transaction costs, and promoting the economic impact of remittances.

Mexican migration involves the unusual situation of a developing country sending migrants to a developed nation with whom it shares a 2,000-mile border. According to the U.S. Current Population Survey, the number of Mexican-born persons in the United States was 6,679,000 in 1996. The yearly flow of migrants between Mexico and the United States was estimated to be between 750,000 and one million persons each year in the late 1990s, with the United States gaining a net increase of between 200,000 and 300,000 migrants each year.

The MIF reported Mexico to be the number one country in terms of remittance flows in 1996. Currently, the only country receiving more remittance payments than Mexico is India. These characteristics make Mexico an ideal place to study the effects of remittances on local communities as well as an ideal place to invest in transfer systems to make these flows more efficient and less costly.

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