A massive hidden economy in the Caribbean and Latin America is growing. One is tempted to immediately think of drug trafficking when you hear such a statement, but this hidden economy is legal, and seemingly beneficial to all. It is the economy of migrant remittances; the money that workers in the United States send back to their countries and families in the Caribbean and Latin America.
If we think of this hidden economy at all, most of us would think of it as fairly insignificant. However, we would be wrong. Last year remittances reached a whopping $142 million, a 48% increase over those in 2019. Even more surprising is that this increase occurred right after the pandemic. The remittances dropped during the pandemic but have rebounded with a vengeance.
Mexico has been the main beneficiary with remittances rocketing from 1.9% of Mexican GDP in 2012 to 4.2% in 2022 (around $60 billion). I have to say that remittances even registering on a country’s GDP percentages is a surprise to me. In 2021, Mexico beat out China as the second-largest beneficiary of U.S. origin remittances – India remains number one.
In smaller Latin American and Caribbean countries, the contribution of remittances to the local economies are even more significant; In El Salvador, Haiti, Honduras and Jamaica remittances now amount to one fifth of national output. When you look at the IMF projections that GDP across Latin America and the Caribbean will only increase 1.8% in 2023, these remittances become even more significant.
As an aside, it’s no wonder that the U.S. has the border/immigrant problem that it does. Why wouldn’t people in the countries south of the U.S. border fight to migrate to such a source of wealth? I would!
An interesting statistic from a recent study of migration from Mexico and six Central American countries claimed that, over 35 years, “every 10% increase in the number of migrants working in the U.S. correlates with roughly a 9% decrease in the number of people back home who were living on the equivalent of $1.90 or less a day.
Most of the remittances are spent on food but they have also changed the landscape in many places: In Anamorós, a town of some 17,000 people in El Salvador, large houses built by remittances loom over traditional dwellings. A municipal worker in the town told the study that she could count the number of families that did not have relatives in the U.S. on one hand.
There are educational benefits as well. Despite the fact that migration results in many children growing up with only one parent – the father is in the U.S. working and sending money home – the amount families in Latin America and the Caribbean spend on schooling has risen by between 23% and, in some cases, 83%.
There are some downsides that have been reported, such as people who receive remittances not bothering to work and prices rising as a result of increased abilities to pay for goods and services, but the vast majority of the results of remittances are positive.
Probably the best characteristic of remittances is that no governments are involved. Unlike aid programs, that automatically eliminates corruption, inefficiencies, bureaucracy and waste. It is an interesting model that could be developed further, if carefully. The U.S. has an aging population, a shrinking workforce, and a labor shortage that has been exacerbated by the pandemic. Instead of reacting myopically to the issue of immigration, reacting positively with a solid policy in place would serve two purposes. It would help solve the U.S. labor problems and, at the same time, and with the appropriate support and promotion, develop an effective program with Latin America and the Caribbean that can ignore the political shenanigans of those countries’ leaders. It would also provide a significant counter to China’s influence in the region.
People to people interactions, especially positive monetary ones, will always build lasting friendships better than any political initiative.