EDITORIAL
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EDITORIAL |
| U.S., Mexico Deepen Economic Ties - Part 2 |
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 Immigration and RemittancesFor most Mexicans who emigrate to the U.S., the attraction lies in the higher wages north of the border. A significant number of expatriate workers earn enough to send money to family in Mexico, providing a major source of income for many villages. The money has been flowing for decades, but the opening of Mexico's economy over the past dozen or so years has expanded the ways citizens working in the U.S. can send money home. [3] Workers' remittances now occupy second place as a source of foreign exchange in Mexico, behind maquiladoras and ahead of tourism and foreign direct investment. The remittances have risen from $84 million in 1960 ($531 million in 2004 dollars) to $16.6 billion in 2004, with an increase to $20 billion estimated for 2005. Two advantages of remittances, when compared with other inflows, are that they have been stable and countercyclical. [4] Few studies analyze the impact of remittances on developing economies, and even fewer look specifically at the impact on poverty levels. Gerardo Esquivel, a researcher at Colegio de México, began with a look at the extent of poverty in Mexico. 
He used three poverty definitions: food poverty, capabilities poverty and assets poverty, meant to be roughly equivalent to extreme poverty, poverty and moderate poverty. (1) A household is considered to be food-based poor if its net per capita income is less than the amount of money necessary to cover basic food expenses. This category included 20 percent of Mexico's population in 2002. (2) A household is in capabilities poverty if its members cannot afford to cover their basic expenses of food, health and education. This applies to 26.5 percent of the population. (3) A household is in assets-based poverty if its members cannot cover expenses of food, health, education, clothing, home and public transportation. About half of Mexico's population fits into this category.Esquivel then considered the impact of remittances on poverty in Mexico. [5] In 2002, about 6 percent of Mexican households received money in remittances-3 percent of urban households and 10 percent of rural families. Most households receiving remittances are in central and southern Mexico. They are not concentrated in the poorest states-such as Chiapas, Guerrero, Oaxaca, Puebla and Veracruz-because the costs of getting into the U.S. make it difficult for someone with extremely limited funds to migrate. Instead, the remittances go to better-off states such as Michoacan, Durango, Guanajuato and Zacatecas. These four states are home to more than one-third of all Mexican households receiving remittances. Esquivel found that Mexico's income distribution is remarkably more uniform once remittances are taken into consideration (Chart 2). For example, over 45 percent of all households that receive remittances would fall in the bottom 10 percent of the income distribution if the remittances were removed. However, only 12 percent of these households still belong to the lowest decile if remittances are included in their income.
Esquivel analyzed the impact of remittances on poverty levels through a propensity score approach that matches households receiving remittances with other households that have similar characteristics. His findings suggest that receiving remittances-regardless of the amount-reduces the household's probability of being in poverty by 10 to 14 percent, depending on the poverty measure used.
It is not clear how to explain this nonlinear pattern because wage differentials between the U.S. and Mexico are larger for the least educated and decline with the level of education. Cuecuecha cited the following hypotheses from current research literature. Declining migration costs for those with more education-possibly related to greater English proficiency among the more educated-could explain the larger migration of individuals with medium levels of education. Limits on access to credit may explain why the groups with low education cannot afford to migrate. Cuecuecha noted that individuals in Mexico do not have access to unemployment insurance, which implies that in cases of unemployment, they must rely on the informal economy or their families. Because poverty is related negatively to education, individuals who have low levels of education have too much to lose if they migrate because the U.S. will not provide unemployment insurance either, and their social network has stayed in Mexico.
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The closeness of the U.S. and Mexican economies raises interesting issues, which researchers are exploring in new and insightful ways. For example, Chinese trade with the U.S. has been based on significant cost advantages, and it has displaced Latin American and Mexican products from the U.S. market. Although a more expensive Chinese currency would help Latin America, it may only be a short-run solution. More than half of China's gains over Latin America are based on more rapidly rising Chinese productivity. The international productivity race reinforces the need for regional reforms.