Workers Remittances
in Mexico
February 20th, 2006
Index
I.
IMPORTANCE
II.
SOME FEATURES OF REMITTENTS AND
BENEFICIARIES
III.
CURRENT REGULATION AND INTERNATIONAL
TRANSFER OF FUNDS: Agreement Banco de
México – Federal Reserve Bank
IV.
IMPACT OF REMITTANCES IN THE ECONOMY
V.
DESTINATION OF REMITTANCES
VI.
REMITTANCES AND ECONOMIC DEVELOPMENT
VII. FINAL COMMENTS
I. Importance (Total income)
 During 2004 remittances totaled US$16.6 billion and US$20 billion in
2005. These figures represent respective annual increases of 24 y
20.6%.
Workers Remittances
(Million US dollars; 2005 - 2005)
Workers Remittances
(Million US dollars; 1995 - 2005)
20,035
20,000
20,000
18,000
18,000
16,613
16,000
16,000
14,000
13,396
12,000
14,000
10,000
12,000
8,000
9,814
10,000
6,000
8,000
4,000
2005
2004
2003
2002
2005
2004
2003
2002
2001
2000
1999
1998
4,000
1997
0
1996
6,000
1995
2,000
2
I. Importance (Evolution in the Last Decade)


Workers remittances have been very dynamic in recent years. In 1995-2000 remittances grew at an
annual rate of 12.3%, whereas in 2000-2005 they did so at a rate of 23%.
The rapid increase of recent years stems from a better statistical coverage, as well as from the
growth of such flows. However, an increase in the number of migrants and decreasing transfer
costs, also explain this behavior.
Inflows from workers remittances
1995
1998
2000
2002
2003
2004
2005
13,396
1,623
6
11,512
255
16,613
1,883
0
14,496
234
20,035
1,867
0
17,895
273
36.5
136.4
-36.2
30.8
-20.4
24.0
16.0
N.S.
22.5
20.4
20.6
-0.9
N.S.
23.4
16.9
Millions of US dollars
Total Remittances
Money Orders
Personal Checks
Electronic Transfers
Direct Transfers *
3,673
1,456
26
1,891
299
5,627
6,573
9,814
1,871
1,434
687
62
9
10
3,250
4,642
8,798
444
488
320
Percentage Change
Total Remittances
Money Orders
Checks
Electronic Transfers
Direct Transfers *
5.6
-10.2
-47.5
24.3
4.9
15.7
8.2
-21.5
23.2
5.8
11.2
-1.0
-83.2
18.0
2.7
10.3
-14.5
-1.1
13.0
7.2
N.S: Not significant.
* Transfers of goods and cash.
3
I. Importance (Number of Transactions and
Average Amount

The number of remittances transactions has also shown a significant increase. Such number went
from 11.3 million transactions in 1995, to 18 million in 2000 and 58.7 million in 2005. For the last four
years, the average remittance has remained in a rank between 320 and 341 dollars.
Inflows from Remittances
(Amount, number of transactions and average remittance)
Inflow1/
Number 2/
Average Amount3/
1995
1998
2000
2002
2003
2004
2005
3,673
4,744
6,573
9,814
13,396
16,613
20,035
11,263
15,901
17,999
29,954
41,808
50,874
58,739
326
298
365
328
320
327
341
1/ Millions of US dollars.
2/ Thousands of transactions.
3/ Dollars.
4
I. Importance (Remittances Instruments)
Inflows from Remittances
(Percentage structure*)
Total Remittances
Money Orders
Checks
Electronic Transfers
Direct Transfers
1995
2000
2001
2002
2004
2005
100.0
39.7
0.7
51.5
8.1
100.0
21.8
0.1
70.6
7.4
100.0
9.0
0.1
87.5
3.4
100.0
7.0
0.1
89.6
3.3
100.0
11.3
0.0
87.3
1.4
100.0
9.3
0.0
89.3
1.4
Inflows from Remittances
(Percentage Structure by Instrument)
89.3
90
80
Electronic
70
60
50
40
Money Orders
Other
30
9.3
1.4
20
10
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
The share of electronic transfers has raised
in recent years. This, due to technological
change and an increased competition among
the various intermediaries, who have been
looking for more efficient electronic
instruments that allow them to offer lower
prices, as well as more safety and speed.
The quality of remittances statistics is
supported in information originated 99% in
accounting records from banks and fund
transfers firms. The remaining 1% consist of
direct transfers captured by means of the
International Travelers Survey, also applied by
Banco de México.
5
I. Importance (Remittances and Other Inflows of
the External Accounts)
 The amount of remittances received by Mexico is very high when
compared with other inflows of the external accounts.
Workers Remittances
(Percentages in 2005)
170%
128%
113%
93%
71%
Crude oil
Exports
Oil Balance
Surplus
International
Travel Inflows*
Foreign
Direct
Investment*
Maquiladora
Surplus
6
I. Importance (Workers´ Remittances as a
Percentage of GDP)
 Remittances went from 0.9 percent of GDP in 1990-1994, to 1.2 percent
in 1995-2000, only to increase significantly to 2.6% en 2005.
Workers Remittances
(% del GDP)
2.64
2.46
2.10
1.43
1.51
1.28 1.27 1.21
1.23
1.13
1.13
0.95
0.85 0.85 0.83 0.82
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
7
I. Importance (Workers´ Remittances by Mexican
State)
Workers´ Remittances by Mexican States in 2005
Mich.
Mich
Gto
Gto.
Jal
Jal.
Méx.
D.F.
Pue
Pue.
Ver.
Oax
Oax.
Gro
Gro.
Hgo
Hgo.
Chis
Chis.
Zac
Zac.
Mor
Mor.
S.L.P.
Qro
Qro.
Sin.
Dgo
Dgo.
Ags
Ags.
Tamps
Tamps.
Chih
Chih.
Nay
Nay.
N.L
N.L.
Tlax
Tlax.
Coah
Coah.
B.C
B.C.
Son.
Col.
Tab.
Yuc
Yuc.
Q.R
Q.R.
Camp.
Camp.
B.C.S.
2,595 (13.0) Mich.
Mich
1,715 (8.6)
Zac
Zac.
1,693 (8.5)
Gto
Gto.
1,675 (8.4)
Ags
Ags.
1,452 (7.2)
Hgo
Hgo.
1,174 (5.9)
Nay
Nay.
1,155 (5.8)
Gro
Gro.
1,002 (5.0)
Mor
Mor.
957 (4.8)
Oax
Oax.
718 (3.6)
Jal
Jal.
655 (3.3)
Qro
Qro.
496 (2.5)
Dgo
Dgo.
476 (2.4)
Col.
476 (2.4)
Pue
Pue.
392 (2.0)
Tlax
Tlax.
371 (1.8)
S.L.P
S.L.P.
342 (1.7)
D.F
D.F.
317 (1.6)
Ver.
302 (1.5)
Chis.
Chis.
Millions of
293 (1.5)
Sin.
Dollars
and
280 (1.4)
Méx.
Percentage
231 (1.2)
Tamps.
Tamps.
210 (1.0)
Chih.
Chih.
Structure*
189 (0.9)
Son.
187 (0.9)
Coah
Coah.
186 (0.9)
Camp
Camp.
145 (0.7)
Q.R
Q.R.
126 (0.6)
Tab.
80 (0.4)
B.C
B.C.
73 (0.4)
N.L
N.L.
49 (0.2)
Yuc
Yuc.
21 (0.1)
B.C.S.
634.8
366.2
346.6
303.2
302.9
298.8
293.6
278.1
272.8
253.1
243.4
235.2
231.9
205.7
198.4
198.4
167.5
164.1
150.5
140.0
Dollars
110.2
Per capita
99.5
85.9
78.8
77.7
65.9
64.0
61.1
59.7
55.3
45.3
42.8
* Figures in brackets refer to the share of each state in the total remittances.
Mich.
Mich
Zac
Zac.
Oax
Oax.
Hgo
Hgo.
Gro
Gro.
Nay
Nay.
Gto
Gto.
Chis
Chis.
Tlax
Tlax.
Mor
Mor.
Pue
Pue.
Ver.
S.L.P
S.L.P.
Col.
Jal
Jal.
Dgo
Dgo.
Ags
Ags.
Qro
Qro.
Sin.
Méx.
Tab.
Tamps.
Son.
Chih
Chih.
D.F
D.F.
Coah
Coah.
Yuc
Yuc.
B.C
B.C.
Q.R
Q.R.
Camp
Camp.
B.C.S.
N.L
N.L.
15.8
8.7
8.5
7.3
7.3
6.8
6.4
5.1
5.1
4.5
4.2
3.7
3.7
3.6
3.6
3.5
3.4
3.0
2.6
2.3
As a
1.3
Percentage
1.2
of State
1.0
GDP
0.9
0.8
0.8
0.7
0.7
0.6
0.5
0.5
0.4
8
I. Importance (Workers Remittances: an International
Comparison)
 During 2004 Mexico ranked third among the main remittances recipient countries.
Workers Remittances in Various Countries in 2004
1. India e/
2. China e/
3. Mexico
2002
2003
2004
4. Philippines
5. Spain
6. Moroco
7. Pakistan
8. Bangladesh
9. Egypt
10. Colombia
11. Portugal
Millions of
Dollars
23,000
21,300
Percentage
of GDP
3.5
1.4
9,814
13,396
16,613
8,961
5,179
4,218
3,943
3,400
3,341
3,170
3,032
1.5
2.1
2.5
10.5
0.5
8.5
4.8
6.1
3.3
3.3
1.8
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Guatemala
El Salvador
Brazil
Dominican Republic e/
Greece 1/
Ecuador 1/
Indonesia e/
Honduras
Peru
Tunisia 1/
Croatia
Turkey
Nicaragua
Costa Rica
Millions of
Dollars
2,551
2,548
2,459
2,300
2,122
1,604
1,300
1,135
1,123
1,100
851
804
519
302
Percentage
del GDP
9.8
16.1
0.4
11.8
1.0
5.4
0.5
15.3
1.7
3.9
2.6
0.3
11.7
1.6
Source: Banco de México (for Mexico) and International Monetary Fund.
1/ Data obtained from the respective country.
e/ Estimated figures of the World Bank.
9
I. Importance (Transfers Cost from Mexico to the US)
 In recent years the costs of money transfers to Mexico has been reduced. The main
factors that explain such reduction are:

The rapid growth of the US population of Mexican origin.

More information available about the costs of the various intermediaries, as well as an increased competition
among them.

The greater use of international electronic transfers has allowed money remittances to become quicker and
safer.
Total Cost of Money Transfers from the U.S. to Mexico of an
Average Amount of US$300 Dollars from a Sample of Firms by City of Origin
(US Dollars per Transfer)
Annual
Average
Chicago Dallas Houston Indianapolis
Los
Ángeles
Miami
Nueva
Sacramento
York
San
Jose
Total
1999
21.8
27.1
21.8
42.1
28.3
27.4
27.0
32.4
--
28.5
2000
18.8
24.3
21.4
29.7
23.7
22.6
21.6
17.1
29.2
23.2
2001
12.7
16.2
15.7
21.1
13.1
17.0
15.7
14.7
15.0
15.7
2002
13.3
14.6
14.9
17.1
13.9
16.4
14.2
15.3
14.4
14.9
2003
11.2
13.1
13.1
11.9
12.0
13.1
12.8
14.5
13.1
12.8
2004
11.2
12.3
12.6
11.3
11.4
12.0
12.2
12.2
11.7
11.9
2005
9.4
10.5
10.9
9.0
9.9
9.5
10.0
10.1
10.1
9.9
Source: Profeco
10
Index
I.
IMPORTANCE
II.
SOME FEATURES OF REMITTENTS AND
BENEFICIARIES
III.
CURRENT REGULATION AND INTERNATIONAL
TRANSFER OF FUNDS: Agreement Banco de
México – Federal Reserve Bank
IV.
IMPACT OF REMITTANCES IN THE ECONOMY
V.
DESTINATION OF REMITTANCES
VI.
REMITTANCES AND ECONOMIC DEVELOPMENT
VII. FINAL COMMENTS
II. Some Features of the Sender and the Recipient
of Remittances
 Surveys compiled by Banco de México in northern border cities
from Mexican migrants living in the US who were planning to spend
some days in Mexico, provide information on the following :

Remittances to relatives and sending frequency. Around 80% of those
interviewed said that they used to send money to their relatives in Mexico on a
regular basis, and that they used to do it 10 times a year.

Relatives in the U.S. and arrival to that country. Four out of five respondents
who send remittances stated that they already had relatives in the U.S. when
they first arrived, most of them said they used to live with them at arrival.

Beneficiaries of remittances. Two thirds of remitters (65%) said that the main
recipients are their parents (well above wife and children), followed in
frequency by wife (14%) and siblings (9%). However, the highest average
amount corresponds to the wife.

Recipients´ other sources of income. Almost half of the remitters surveyed
said that their beneficiaries have additional sources of income.
12
II. Some Features of the Sender and the Recipient
of Remittances

Gender of the Remittent. More than 90% percent of the remitters who were
surveyed were men.

Visit and Amount of the Transfer. When migrants visit their relatives in Mexico,
they normally deliver a bigger amount of money than the one they use to send
on a monthly basis.

Average Remittance and Income of the Worker. As expected, the survey shows
that the average amount of the remittance is directly related to the worker’s
income.

Income and Academic Level of the Remittent. Ranked by their income, the
academic level of the worker increases (also the average monthly remittance).

Years of Residence and Average Remittance. With age and years of residence
abroad, the average remittance tends to decrease, meaning that, with time,
workers generate increasing economic commitments in the United States.

Use of Remittances. According to the responses, the main use of the
remittances is consumption. However, almost half (44%) of those who were
surveyed stated that their beneficiaries have used part of the resources they
receive to improve or to buy a house.
13
Index
I.
IMPORTANCE
II.
SOME FEATURES OF REMITTENTS AND
BENEFICIARIES
III.
CURRENT REGULATION AND INTERNATIONAL
TRANSFER OF FUNDS: Agreement Banco de
México – Federal Reserve Bank
IV.
IMPACT OF REMITTANCES IN THE ECONOMY
V.
DESTINATION OF REMITTANCES
VI.
REMITTANCES AND ECONOMIC DEVELOPMENT
VII. FINAL COMMENTS
III. Current Regulation
 Banco de México has legal power to regulate fund
transfer services carried out by financial institutions
and any other agent professionally involved in such
activity.
 On October the 28th 2002, a set of rules were issued
instructing all firms dedicated to the service of funds
transfers to provide monthly information on the amounts
and volume of remittances sent to Mexico, classified by
Mexican recipient state.
 The rules were issued with the following goals : a) to
create a register of firms dedicated to money transfers,
b) to standardize the information received, and c) to
produce information at a national level and state level.
15
III. Current Regulation (Banco de México – Federal
Reserve Bank Agreement)
 There is an agreement between the Federal Reserve
Bank of the United States and Banco de México to
connect their respective system of payments
(“Automatic Clearance”). By this agreement, banks can
transmit and receive payments in a way similar to the
one they use in their countries.
 The system is useful for payments that can be
programmed, such as workers remittances, pensions,
payroll, etc.
 This project is called “Direct to Mexico”.
16
III. Current Regulation (Banco de México – Federal
Reserve Bank Agreement)
 The US Government has been sending payments since
October 2003.
 Starting February 2004, commercial payments from the
United States to Mexico have been processed from
particulars (remittances and payments made by firms).
 Goal: To develop a system that allows trans-border
bidirectional transfers between deposit institutions of
the United States and Mexico.
17
III. Current Regulation (Banco de México –
Federal Reserve Bank Agreement)
 The infrastructure allows for multilateral transfers:
transfers originating in any deposit institution in the
United States (Mexico) to any deposit institution in
Mexico (United States).
 The system is open for banking clients in the United
States (for payments to Mexico).
 There is a widespread joint promotional campaign by
Banco de México, the Mexican embassy and consulates
in the United States and the Federal Reserve Banks.
18
Index
I.
IMPORTANCE
II.
SOME FEATURES OF REMITTENTS AND
BENEFICIARIES
III.
CURRENT REGULATION AND INTERNATIONAL
TRANSFER OF FUNDS: Agreement Banco de
México – Federal Reserve Bank
IV.
IMPACT OF REMITTANCES IN THE ECONOMY
V.
DESTINATION OF REMITTANCES
VI.
REMITTANCES AND ECONOMIC DEVELOPMENT
VII. FINAL COMMENTS
IV. The Impact of Remittances in the Economy
 Remittances improve significantly the welfare of the
recipient families. In Particular:
 Remittances have a positive effect on their level of
income and, therefore, also on consumption and
investment;
 they soften their consumption pattern over time; and.
 They allow the families an increased consumption of
basic products.
20
IV. The Impact of Remittances in the Economy
 Remittances are an important source for the formation
of physical and human capital:
 by increasing the consumption of basics of the recipient
families, their health conditions improve;
 children in recipient households have higher academic
levels than those in similar non recipient households;
 It is estimated that remittances are responsible for almost
20% of capital invested in urban micro-business firms;
and,
 Recipient households gain access to capital by
formalizing their relations with financial institutions and
therefore, reduce their effective financial costs.
21
IV. The Impact of Remittances in the Economy
 Workers’
stability:
remittances
enhance
macroeconomic
 A higher level of remittances allows for an increase of
the domestic expenditure without facing major external
imbalances.
 By increasing the current account revenues,
remittances help improve the financial position of the
economy and, as a consequence, also improve the
credit conditions the country faces in international
markets.
22
IV. The Impact of Remittances in the Economy
 Remittances represent a
consumption, 3.6 % in 2004.
growing
share
of
private
Workers’ Remittances
(Share of Private Consumption and Millions of US Dollars)
3.6
3.8
4.0
3.5
1.1
1.0
0.9
0.5
0.5
0.7
1.5
1.4
1.5
1.5
1.4
1.4
1.2
1.2
1.1
1.2
2.0
3.1
1.9
2.0
1.9
2.0
1.8
1.7
2.1
2.2
Millions of US Dollars
2.5
1.0
21,000
Share of Private Consumption
3.0
24,000
18,000
15,000
12,000
9,000
6,000
3,000
0.0
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 *
0.5
*/ Figures for 2005 were calculated based on information of the third quarter.
23
IV. The Impact of Remittances in the Economy
 Based on a hypothetical exercise, it is estimated
that:
 Without remittances, per capita private consumption
in 2004 would have been almost 3% smaller than the
one observed; and,
 GDP growth could have been smaller than observed
by 0.3%.
 Of course, these impacts are more significant in
those states in which the remittances recipient
families are concentrated.
24
Index
I.
IMPORTANCE
II.
SOME FEATURES OF REMITTENTS AND
BENEFICIARIES
III.
CURRENT REGULATION AND INTERNATIONAL
TRANSFER OF FUNDS: Agreement Banco de
México – Federal Reserve Bank
IV.
IMPACT OF REMITTANCES IN THE ECONOMY
V.
DESTINATION OF REMITTANCES
VI.
REMITTANCES AND ECONOMIC DEVELOPMENT
VII. FINAL COMMENTS
V. Destination of Remittances
 Most of remittances are used by households for
consumption expenditure, including education expenditure.
Part of such resources are used for acquisition and
improvement of housing.
 The results of the questionnaire applied by INEGI to 10% of
Mexican households show that :
 The share of Mexican households with electrical
appliances (radio, TV, video recorders, refrigerators,
washing machine, etc.) is higher in households that
receive remittances than in those that do not receive
such transfers.
 In 2000, 83% of households receiving remittances
owned the house where they lived, whereas the
proportion was 78% for households that did not receive
such transfers
26
Index
I.
IMPORTANCE
II.
SOME FEATURES OF REMITTENTS AND
BENEFICIARIES
III.
CURRENT REGULATION AND INTERNATIONAL
TRANSFER OF FUNDS: Agreement Banco de
México – Federal Reserve Bank
IV.
IMPACT OF REMITTANCES IN THE ECONOMY
V.
DESTINATION OF REMITTANCES
VI.
REMITTANCES AND ECONOMIC DEVELOPMENT
VII. FINAL COMMENTS
VI. Remittances and Economic Development
 Studies regarding worker remittances’ impact have found
that those resources are mainly used to finance
consumption, as well as to increase human capital
(education and health expenditure). Only a small portion
of remittances are oriented towards investments such as
the improvement or acquisition of a house or to establish a
small business.
 Investment in human and physical capital has a direct
impact on economic growth, while consumption
expenditure affects GDP indirectly through aggregate
demand.
28
VI. Remittances and Economic Development
 Two factors have limited remittances to be channeled to
investment expenditure: 1) the low portion of such
remittances that is left available to finance investment
expenditure; and 2) the lack of managerial culture on the
side of remittances’ recipients.
 Some studies have found that remittances dampen revenue
falls during economic crisis, reducing family income
volatility.
 Evidence also suggests that members of recipient
households have less incentives to search for alternative
sources of income.
29
Index
I.
IMPORTANCE
II.
SOME FEATURES OF REMITTENTS AND
BENEFICIARIES
III.
CURRENT REGULATION AND INTERNATIONAL
TRANSFER OF FUNDS: Agreement Banco de
México – Federal Reserve Bank
IV.
IMPACT OF REMITTANCES IN THE ECONOMY
V.
DESTINATION OF REMITTANCES
VI.
REMITTANCES AND ECONOMIC DEVELOPMENT
VII. FINAL COMMENTS
VII. Final Comments
 A number of factors have stimulated Mexican migration to the
United States:
 Rigidities in the labor market.
 A poor dynamic creation of well paid jobs in the formal sector.
 A high and increasing number of Mexicans with family ties in the
United States, which cheapens migration.
 It is reasonable to expect that a significant contraction of wage
differentials between Mexico and the United States will take a long
time to make migration less attractive to Mexican workers.
 Migration to the USA shows the need for pending structural
changes that would widen opportunities for productive and well
paid jobs in Mexico.
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VII. Final Comments
 On the other hand, the positive effects of Mexican migrants´
remittances on the welfare of recipient families, must be stressed:
 Remittances have helped to reduce poverty in significant segments
of the population;
 They have enhanced improvements in health and education for
recipient families;
 Have provided families with better financial conditions and, that way
their consumption patterns have been softened and they have also
been able to invest in micro-business firms.
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