Meltdown 101: Cash To Mexico And The US Economy

EL PASO, Texas (AP) – With the economy struggling through the longest recession since the Great Depression, the steady flow of dollars that immigrants send back to Mexico has also taken a serious hit.

Mexico’s central bank, which tracks money sent to the country by Mexicans living abroad, announced last month that these “remittances” had dropped by more than 18 percent in the past year, from $2.19 billion in April 2008 to $1.78 billion this April. It was the biggest such decline on record.

Mexico isn’t alone in the loss of remittance revenue, but the U.S. neighbor’s economy relies heavily on the billions of dollars sent home annually.

But what about that connection between remittances and the U.S. economy? Does the decline in money sent to Mexico offer any clues about where things stand north of the border?

Here are a few questions and answers about remittances and the U.S. economy.

A: Yes, many millions of Mexican immigrants live in the U.S. But immigrants have been disproportionately affected by the deepening recession because they often work in industries that are among the hardest hit.

“It really shows you where the weakness in the economy is,” said David Besanko, a professor at Northwestern University’s Kellogg School of Management. “Immigrant workers are disproportionately employed in construction and manufacturing.”

And data about illegal immigration from the U.S. Border Patrol suggests that fewer people are making the trek north to find work in the United States.

A: Like nearly all Americans, immigrant workers who have been able to hold on to their jobs are likely making less money today.

Surveys by groups including the Pew Hispanic Center, a nonpartisan research group in Washington, show that the same number of Hispanics living in the U.S. continue to send money to Mexico and other Latin American countries, but the amount of money has dropped in direct correlation with their drop in income.

A: No. Though immigrant workers have historically sent as much as $25 billion from the U.S. to Mexico annually, that money is still just a small fraction of the U.S. gross domestic product of nearly $14 trillion. (Gross domestic product, which measures the value of all goods and services produced in the United States, is the best gauge of the nation’s economic health.)

And because that nearly $25 billion was not a direct part of the U.S. economy – it’s sent out of the country, rather than spent on anything sold domestically – its absence should hardly be missed.

“The importance on the U.S. economy is going to be relatively slight,” Besanko said.

A: With an economy about one-fourteenth the size of the U.S., the absence of remittances – Mexico’s second-largest legal source of foreign income, behind revenue from the sale of oil – is likely to deeply affect the Mexican economy.

The greatest impact is likely to be felt in rural communities, from which residents have historically migrated to the U.S. More urban areas, Besanko said, have more stable, established local economies that can survive without the flow of foreign money.

A: No. With the recession hitting nearly every corner of the globe, remittances to nearly every country are down. China and India lead the world in receiving remittances annually, with Mexico a close third.

By ALICIA A. CALDWELL, Associated Press Writer

(Copyright 2009 by The Associated Press. All Rights Reserved.)