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Globalization, Migration, and Development: The Role of Mexican Migrant Remittances

From: Economía
Volume 6, Number 1, Fall 2005
pp. 217-256 | 10.1353/eco.2006.0010

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Econom�a 6.1 (2005) 217-256

The Role of Mexican Migrant Remittances

Ernesto López-Córdova


Ongoing debates on the merits and shortcomings of globalization mainly focus on the consequences of increased capital and goods flows for economic development. Until recently, international migration has received relatively little attention in such discussions. This is somewhat surprising, since accounts of the first wave of globalization, toward the end of the nineteenth century, highlight the impressive movements of people around the world. In part, the oversight reflects the paucity of reliable data on migration.

This paper contributes toward filling this gap. It explores whether the movement of people across borders fosters development, just as capital and trade flows might do. In particular, the paper focuses on the role played by migrants' remittances to families in their countries of origin.

The magnitude of remittance flows is substantial. For instance, the Multilateral Investment Fund (MIF) uses careful household surveys to measure remittance flows to Latin America and the Caribbean. The results indicate that these exceeded U.S.$45 billion in 2004, which is more than the combined flows of foreign direct investment and development assistance. The region is thus the largest remittance recipient in the world. Worldwide, remittance flows to developing countries grew from U.S.$31 billion in 1990 to an estimated U.S.$126 billion in 2004. Beyond having grown rapidly, remittances are less volatile than other private capital flows, they are less procyclical (and might even be countercyclical), and they partially accrue to households with dire needs. All this makes them a potentially important tool for promoting development in recipient nations.

To test some of these notions this paper analyzes the case of Mexico, a country that has experienced a fast integration with the global economy not only through trade and capital flows, but also through migration. Mexico is the second-largest remittance recipient in the world, after India, and is followed by China, Pakistan, and the Philippines.

Specifically, the paper looks at a cross-section of Mexican municipalities and analyzes whether development indicators improve as the fraction of remittance-receiving households in a municipality rises. I pay particular attention to schooling and health status, with a secondary focus on poverty and a marginalization index that summarizes several welfare measures. The results suggest that an increase in the fraction of households receiving remittances reduces infant mortality and illiteracy among children aged six to fourteen years, while at the same time alleviating some dimensions of poverty and improving living conditions. Remittances seem to improve school attendance among young children, although the opposite seems to be the case among teenagers.

To address the potential endogeneity of remittances, I estimate two-stage least-squares models using municipal rainfall patterns and the distance to Guadalajara as instrumental variables. Since these instruments may have shortcomings, I also incorporate a rich set of controls that are potentially interesting in and of themselves.

The results on the impact of remittances hold even after I account for migration more broadly. This is relevant because remittances and migration may affect development outcomes in independently and possibly conflicting directions. For example, migration may disrupt family life and have a negative impact on child schooling, while remittances may relax liquidity constraints and allow households to invest in education. On the other hand, migration may give households access to better healthcare information, and that positive impact may be reinforced by health expenditures financed with remittance income.

Isolating the impact of remittances from that of migration is very difficult, particularly if one wants to identify exogenous variation in both. To control for the separate impact of migration, I use state dummies that capture the existence of historical migration networks, and in some specifications I also use a proxy for historical migration at the municipal level. The latter is defined as the sum of the distance from the municipality to the 1920s railroad network plus the distance from that point to the U.S.-Mexico border. Despite these efforts, the results below are best interpreted as reduced-form estimates that capture both the effects of migration and remittance flows.

The work presented here contributes to an incipient literature that finds evidence of a...