In 2012, foreign workers in the United States sent remittances to their home countries totaling more than $123,273,000,000



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What are “remittances”?



Remittances are funds transferred from a foreign worker to an individual in his or her home country. The people in the home country who receive this money typically spend it on food, clothing, and other essentials. Each year, foreign workers send home billions of dollars to their native countries.[i] The following World Bank[ii] chart lists the countries that received the most remittances in 2012.






The figures for the following year, 2013, were India ($71 billion), China ($60 billion), the Philippines ($26 billion), Mexico ($22 billion), Nigeria ($21 billion), and Egypt ($20 billion). Remittances are expected to experience an average annual growth rate of more than 8%, which by 2016, could result in a total of $540 billion if only developing countries are counted and a total of more than $700 billion worldwide. Remittance amounts already exceed the foreign exchange reserves in at least 14 developing countries, and they are equivalent to more than 50% of the level of the reserves in more than 26 of them.[iii]



More remittances are sent from the United States than from any other country, approximately 23.3% of them. The total amount of remittances sent from the United States to other countries in 2012, was more than $123,273,000,000.[iv] The following chart provides World Bank estimates of how much money was sent from the United States to 15 other countries in 2012.[v]





Significant fees are charged for sending a remittance and sometimes also for receiving it.



The World Bank monitors remittance fees across all geographic regions of the world and publishes this information on Remittance Prices Worldwide.[vi] In the first quarter of 2014, the global average total cost of sending remittances was 8.36%, which is a new low; average rates have been significantly higher in previous years. The World Bank researchers tried to determine whether fees also are being charged to the person who receives the remittance. In the majority of the cases (69%) they checked, the provider of the service claimed that no fee was charged to the receiver, but 11% of the service providers disclosed a receiving fee. The fees to the receivers of remittances generally are for transfers to a bank account; it seems to be a common practice for banks to charge account holders for receiving international transfers.[vii]



In many cases, the people sending the remittances are low-income migrant workers and the amounts typically are no more than a few hundred dollars at a time. Any reduction in remittance transfer prices would result in more money remaining in the pockets of migrants and their families, and it would have a significant effect on the income levels of the remittance receivers. For instance, if the cost of sending remittances could be reduced by five percentage points, remittance recipients in developing countries would receive approximately $16 billion dollars more each year than they do now.[viii]



The Overseas Development Institute[ix] (ODI), a leading international development think tank in the United Kingdom, recently announced that Britain's leading money transfer companies are imposing a "super tax" on remittances to Africa which should be investigated by the government's consumer watchdog. According to ODI, Africa is losing $1.8 billion a year from excessive remittance fee charges.[x] ODI explains in its report, “Lost in intermediation, How excessive charges undermine the benefits of remittances for Africa,”[xi] that foreign workers are paying an average of 12% in fees to send remittances to relatives in sub-Saharan Africa. For example, a worker sending $200 home to provide for a relative’s education would pay a $24.00 fee.



Remittances sent by foreign workers in the United States to Latin American countries.



Remittances from the United States to Latin American countries usually are concentrated in the countries closest to the United States border. More than half of the remittances to Latin American Countries ($23 billion) in 2012 were sent to Mexico. United States residents are the source of nearly all remittance money received in Mexico (98% in 2012) and of most remittance money received in six other Latin American nations: Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Panama. Remittance amounts from the United States are higher than any from other country with respect to remittances sent to Colombia, Peru, and Venezuela also.



Remittance amounts correlate highly with the size of a particular country’s immigrant population in the United States. The four Latin American nations that receive the most remittances from the United States are Mexico, El Salvador, Guatemala, and Honduras; and they have the highest immigrant populations in the United States. The Latin American nations with the lowest share of the remittances from the United States are Uruguay, Bolivia, and Paraguay; and they also have the lowest share of immigrants living in the United States.[xii]



The population of Hispanics of Mexican origin in the United States was estimated at 33.5 million in 2011.[xiii] Their recorded remittances increased from $6.6 billion in 2000 to $26.1 billion in 2007, and then decreased in 2012 to $22.4 billion. The decrease has been attributed to the recession in the United States during that period. The recession had a strong impact on employment sectors in the United States with a large number of Mexican immigrants such as the construction industry. Remittances are the second largest source of foreign income in Mexico, after oil exports, and ahead of tourism and direct foreign investment. A drop in remittances can result in poverty for many families, particularly in rural areas. These families spend approximately three-quarters of the money from remittances on everyday expenses, such as food and rent, about 8% on house acquisition and improvement, 6% to 7% on debt repayment, and 3% to 4% on land acquisition, agricultural implements, and business-related expenses.[xiv]



Most Latin American immigrants in the United States send remittances to their home countries, but so do some Latin Americans who were born in the United States. Research indicates, however, that Latin Americans who are foreign-born United States citizens or legal permanent residents are less likely to send remittances to their home countries than Latin Americans who are undocumented immigrants. This may be due in part to the fact that the undocumented immigrants usually still have more of an attachment to their home country than they do to the United States.[xv]



Impact of remittances on development.



According to Dilip Ratha, Lead Economist and Manager of the Migration and Remittances Unit at the World Bank,[xvi] it is difficult to overstate the importance of the remittances that are sent to developing countries. Remittances can be a major vehicle for reducing the scale and severity of poverty in the developing world. The money acts as a lifeline for the poor by increasing income for individuals and families. In addition to the direct financial benefits, remittances are associated with greater development in areas such as health, education, and gender equality. Also, remittances are countercyclical; family members abroad are likely to be even more generous in times of hardship. Ratha argues that policymakers can maximize the positive impact of remittances by making them less costly and more productive for both the individual and the country of origin. For instance, measures to ensure that the families who receive remittances have access to other financial services could go a long way towards boosting development outcomes. Remittances also can increase the home country’s credit worthiness, which might result in more favorable loan terms. The World Bank bases its analysis of how much debt a country can carry at various risk levels in part on how much money the country receives from remittances.[xvii]



The April 2014 Semiannual Report from the World Bank’s Office of the Regional Chief Economist for Latin America and the Caribbean Region,[xviii] however, reflects less optimism about whether remittances have a positive impact on growth in Latin American countries, and the reasoning seems to apply to underdeveloped countries generally. According to this report, estimates tend to show only modest developmental impacts from funds provided by remittances. Remittance funds seem to go mainly to countries that are poorer and have lower quality institutions. Thus, it seems that remittances are best characterized as “a lifeboat.” When everything goes wrong, you can count on remittances for a rescue, but they are not the best way forward. Innovative policies are needed that would encourage remittance recipients to use at least part of their remittance income for asset building, such as investments in health, education, and housing.[xix]






[i] Brent Radcliff, Investopedia, “Introduction to Remittances” (Aug. 20, 2010). http://www.investopedia.com/articles/economics/10/introduction-remittances.asp



[ii] World Bank. http://www.worldbank.org



[iii] World Bank, Migration and Development Brief, “Migration and Remittance Flows: Recent Trends and Outlook, 2013-2016” (Oct. 2, 2013). http://www.eldis.org/go/home&id=66039&type=Document#.U1KKTl5NWuc



[iv] PEW Research Center, “Remittance Flows Worldwide in 2012, United States” (Feb. 20, 2014). http://www.pewsocialtrends.org/2014/02/20/remittance-map/



[v] PEW Research Center, Social & Demographic Trends, “Remittance Flows Worldwide in 2012, United States” (Feb. 20, 2014). http://www.pewsocialtrends.org/2014/02/20/remittance-map/



[vi] World Bank, Remittance Prices Worldwide. http://remittanceprices.worldbank.org



[vii] World Bank, Remittance Prices Worldwide (Issue No. 9—March 2014). https://remittanceprices.worldbank.org/sites/default/files/RPW_Report_Mar2014.pdf



[viii] World Bank, Financial & Private Sector Development, Remittance Market Outlook. http://go.worldbank.org/BO45C21RT0



[ix] Overseas Development Institute. http://www.odi.org.uk



[x] Larry Elliott, The Guardian, “UK money transfer firms accused of excessive charges on Africa remittances” (Apr. 15, 2014). http://www.theguardian.com/global-development/2014/apr/16/uk-western-union-moneygram-overseas-development-institute-odi-remittances-africa



[xi] Kevin Watkins and Maria Quattri, Overseas Development Institute, “Lost in intermediation” (April 2014). http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8901.pdf



[xii] Francisco Alba, Migration Policy Institute, “Mexico: The New Migration Narrative” (Apr. 24, 2013). http://www.migrationpolicy.org/article/mexico-new-migration-narrative



[xiii] PEW Research Center, Hispanic Trends Project, “Hispanics of Mexican Origin in the United States, 2011” (June 19, 2013). http://www.pewhispanic.org/2013/06/19/hispanics-of-mexican-origin-in-the-united-states-2011/



[xiv] Francisco Alba, Migration Policy Institute, “Mexico: The New Migration Narrative” (Apr. 24, 2013). http://www.migrationpolicy.org/article/mexico-new-migration-narrative



[xv] PEW Research Center, “Remittances to Latin America Recover – but Not to Mexico” (Nov. 15, 2013). http://www.pewhispanic.org/2013/11/15/remittances-to-latin-america-recover-but-not-to-mexico/



[xvi] Dilip Ratha, Manager, Migration and Remittances Unit and CEO, Global Knowledge Partnership on Migration and Development (KNOMAD), Development Prospects Group, World Bank. http://blogs.worldbank.org/team/dilip-ratha



[xvii] Dilip Ratha, Migration Policy Institute, “The Impact of Remittances on Economic Growth and Poverty Reduction” (Sept. 2013). http://www.migrationpolicy.org/research/impact-remittances-economic-growth-and-poverty-reduction



[xviii] World Bank, Office of the Chief Economist, Latin American & the Caribbean. http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/EXTLACOFFICEOFCE/0,,menuPK:870905~pagePK:64168427~piPK:64168435~theSitePK:870893,00.html



[xix] De la Torre, Augusto, Guillermo Beylis, and Jaime de Pinie?s, 2014. “International Flows to Latin America: Rocking the Boat?” LAC Semiannual Report (April), World Bank, Washington, DC, at pp. 9, 51. http://www.worldbank.org/content/dam/Worldbank/document/LAC/LAC_economic_outlook2014.pdf







Reprinted with permission.






About The Author







Nolan Rappaport was an immigration counsel on the House Judiciary Committee. Prior to working on the Judiciary Committee, he wrote decisions for the Board of Immigration Appeals. He also has been a policy advisor for the DHS Office of Information Sharing and Collaboration under a contract with TKC Communications, and he has spent time in private practice as an immigration lawyer at Steptoe & Johnson. He is retired now, but he welcomes part time and temporary work.







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