Comments and Discussion

Andrea Tokman R.: Globalization has been a hot topic for the last decade or so. While historically discussions have focused on trade liberalization and capital flows, they have recently shifted to include the flow of people between countries--that is, migration--and the reverse resource flows it generates in the form of remittances. The latter are the fastest-growing and arguably the most stable capital flow to the developing world. For some countries, they are as large as FDI and exceed official aid and non-FDI private capital flows. They will likely continue to grow given intercountry wage differentials and persistent labor shortages in developed economies, combined with the decreasing costs of remitting.

Policymakers have started to realize that if channeled efficiently, remittances can contribute considerably to development and poverty alleviation. Beyond having a potentially large impact on the welfare of migrants' families--be it in terms of access to basic necessities or improved health and education--they may also generate spillover effects that provide opportunities to extended families and local communities. Other positive effects include the reduction of income volatility and increased knowledge flows, as well as further development of financial systems and increased access to foreign exchange and financial products. Some potentially negative aspects associated with remittances are brain drain, increased income inequality in receiving communities, reduced labor effort, Dutch disease, and the delay of desirable reforms.

In this context, careful studies of the effects of remittances are essential, and this study finds evidence of net positive effects on education, health, and poverty outcomes in Mexico. Its focus on Mexico is appropriate because this is one of the major remittance-receiving countries in the world. Even so, external validity is almost always an issue: benefits to different countries can vary depending on the structure of the local economy and related policies and regulations, such as foreign exchange controls, taxation, and financial sector regulations.

For the case of Mexico, one of this paper's contributions is to show that the precise choice of outcomes is not trivial: education, health, and poverty are all relevant, but the way they are affected by remittances is complex. With regard to schooling, for example the paper shows that sometimes one finds no effect when using averages and not allowing for the possibility of different effects at different educational levels. Specifically, the effect is positive for the lowest education levels and negative for the highest levels. This age-differentiated impact is consistent with a story in which future migrants are the children of present-day migrants. Since many of them expect to end up in unskilled or low-skilled jobs abroad, they may have little incentive to invest in human capital beyond a certain level, and they may save remittances to finance future migration.

In the case of poverty, the effects of remittances differ for extreme versus "normal" poverty, with effects observed for the latter but not the former. This may reflect the fact that the poorest families are not the ones sending out migrants or receiving remittances, probably because they cannot afford the costs of migration. However, remittances may have important indirect effects on the extremely poor that are not considered. For instance, an increasing demand for labor-intensive goods (such as construction) and a redirection of social spending away from remittance-receiving families may help improve their living conditions. These less direct effects are essentially absent from the current research.

Another relevant point is that isolating the effects of remittances from those of migration itself is complex, and, as recognized by the author, it is not fully achieved in the paper. In the case of health, for instance, it is not clear whether the effect of remittances works through increased income or through the flow of health-related information when migrants keep in touch with their families.

Despite these difficulties, the paper points to a positive net effect of remittances, and it therefore calls for policies designed to enhance them. As the author points out, the costs of remitting are still high...