Each year, millions of immigrants in the U.S. send billions of dollars in remittances to friends and family members in their home countries. It is easy to mistakenly assume that this represents a huge loss for the U.S. and in this economy, why are we allowing billions of dollars to be sent abroad? Like all things immigration-related, however, the relationship between remittances and the U.S. economy is much more complex than meets the eye. While it’s true that remittances are an important source of income for immigrant-sending countries, remittances are also a huge boost to U.S. exports and the U.S. economy.
According to a report published today by the Immigration Policy Center (IPC), Many Happy Returns: Remittances and their Impact by Kristin Johnson, Ph.D., remittances perform several important functions:
- Remittances are critical resources for the poorest people in developing countries. Remittances increase the financial resources available to the poor and allow them to consume goods, such as food and clothing. When the poor are able to buy things, they expand the demand for goods and services and boost U.S. exports.
- Remittances help wealthier families in sending countries as well. While they might not need remittances to buy basic household goods, thanks to the remittances received, families can invest more in their own human capital and productivity. They can become better educated and trained, and can buy additional technology and equipment for their businesses, much of which is purchased from the U.S. This means that middle class families can also buy more goods, increasing the pool of people who can buy U.S. exports.
- When people in sending countries buy more, they’re often buying exports from the U.S. Remittances facilitate demand for U.S. exports and make U.S. goods more competitive. The U.S. states with large foreign born populations tend to increase exports to the home countries of the immigrant population. The 15 states with the highest foreign-born populations account for over half of all U.S. exports. In 2008, 23% of exports from California went to Mexico and China – the two countries that demonstrate the largest foreign born populations in that state. In other words, immigrants in the states help to boost the states’ exports.
- Remittances help build the financial infrastructure of a country. Remittances are increasingly made electronically, through U.S. and U.S. banking and financial business partners. Financial services and money transfer companies in the United States have enjoyed significant expansion, new partnerships, and significant increases in foreign transfer income through remittances. Building and stabilizing the financial infrastructure in sending countries benefits the U.S. by building markets for exports.
All of this comes into particular focus when considering Haiti, which will benefit from the remittance as it recovers from a devastating earthquake. Haiti is the poorest country in the Western Hemisphere, and it has received over a billion dollars in remittances in the last year. Remittances may account for up to 30% of Haiti’s national income. The majority of people who receive remittances are very poor, and the money they receive from immigrants abroad is, in some cases, the only income they have. In the short term, remittances, along with foreign aid and donations, will be vital to Haitians’ survival. In the medium-term, remittances will play a critical role in the rebuilding of the country’s physical and financial infrastructure.
Those same remittances will also have a net benefit for the U.S. Between 1990 and 2009, 50-60% of Haiti’s imports came from the U.S. The bulk of these imports are comprised of food products and household goods, with the largest dollar amounts realized in rice, wheat and meat products—48% of the food consumed in Haiti is imported. The remittances sent to Haiti mean that Haitians are able to get the most basic supplies like food and other goods, and that means more exports from the U.S.
It is simplistic to argue that remittances are bad because money is leaving the U.S., but upon further analysis, it becomes clear that remittances return to the U.S. in the form of increased exports. Remittances give individuals in foreign countries the ability to buy U.S. goods and the ability to invest in themselves which, in turn, allows them to buy even more U.S. goods.
Photo by alex-s.