Remittances to Mexico
Mexicans in the U.S. sent an estimated $20 billion back home last year, most of that to their own families. But to hear American critics tell it, these voluntary, private transactions are actually a curse. They are said to be "subsidies" that prevent Mexico from confronting its own lousy economic policies. But this is an argument with more holes than the border fence that Congressman Tom Tancredo (R., Colo.) wants to build.
It's certainly true that Mexico could do more to free up its economy and invite foreign and domestic investment... But foreign "remittances," as these expat cash flows are called, are a force for economic and political good. As an economic matter, they flow directly from individuals in the U.S. to private individuals or businesses south of the border. This cuts out the government middleman and provides capital immediately for private investment or consumption.
Mexicans use the money to start new businesses, improve their homes and educate their children. In this month's issue of the Cato Journal, World Bank economist Simeon Djankov and two other authors find that while "remittances have no direct effect on economic growth," they do "have a significant and positive effect on investment, without having any effect on government consumption." The authors found such private forms of aid far more helpful than traditional, government-led foreign aid, which they argued had "discouraging" results. What would anti-remittance American conservatives prefer for Mexico: more World Bank loans?