Friday, November 23, 2007

The immigrant's new best friend 

More than three years ago, I wrote a study of Armenian migration and remittances around the world. (Here are the two papers that research generated.) At the time, one of the complaints I heard from many sources were the high prices charged for remittances by Western Union. The only reason I could find for the higher prices was the ubiquity of WU around the world, with over 320,000 offices. An article in Wednesday's NYT suggests it has "five times as many locations worldwide as McDonald�s, Starbucks, Burger King and Wal-Mart combined."

Stung by the criticism, Western Union now ties its future to immigration and has become a champion for open borders.

Having once stressed efficiency (�the fastest way to send money�), Western Union now emphasizes the devotion the money represents. One poster pairs a Filipino nurse in London with her daughter back home in cap and gown, making Western Union an implicit partner in the family�s achievements. �Sending so much more than money� is a common tag line.

The company sponsors hundreds of ethnic festivals, concerts and sporting events, from cricket matches for Indians in Dubai to sack races for Jamaicans in Queens. Last year it paid a Filipino pop star, Jim Paredes, to record a Tagalog song urging migrants to send money home. It paid the producers of a Bollywood film, �Namastey London,� for a scene in which a Western Union wire transfer helps rescue the heroine.

The Western Union agent in Panama played the rescuer�s role himself. With many of his customers illegal immigrants � mostly from Colombia � he put three lawyers on retainer and started a radio show. The lawyers answered callers� questions and scheduled free appointments to get them legalized.

�Every time an immigrant is forced outside the country, we lose a potential customer,� said the agent, Jaime Lacayo, who provided the legal services for two years and still runs the radio show. �We have participated in many marriages of foreigners marrying Panamanian ladies, because that is the best way to legalize your status.�

Fees have dropped, but along with this are concerns about the use of the system by illegal aliens and by terrorist groups. A slowing economy in the US has slowed the growth of remittances according to this survey from July. So if you want to place bets on the immigration debate (along with the state of the US economy), you can either go long or short in WU.

In the Armenian case, WU still has the lion's share of the market for remittances from everywhere else (there's one decent competitor making some inroads), but the ex-Soviet remittance market -- which is a majority of the market -- is picked up by banks with ties to either the old Soviet savings bank or postal bank systems. If competition works elsewhere, WU still has the largest network.

Side note: cool graphic from the Times on remittances from the US to the world.

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Wednesday, June 06, 2007

The brain drain of Mexico 

Frank Stephenson calls this paragraph from the Investors Business Daily "the silliest sentences I've read today."
Illegal immigrants in the U.S. are paying for Mexico's consumer binge. Currently, some 10% of all Mexican households get remittances from the U.S. Foreign workers now make up 16% of the Mexican work force. If they stayed home and worked in Mexico they would be building Mexico's economy � not that of the U.S. Instead, they live in poverty here, overwhelming U.S. social services agencies and making Mexico's economy much weaker than it should be.
I spent time a few years ago in Armenia thinking about remittances, and wrote two papers on the topic with my colleague Bryan Roberts. I haven't thought as much about the question of whether or not they are a burden on the U.S. economy on net (Stephenson says they probably are not, but I don't know that.) What intrigues me is the last line -- do the remittances help or hurt the economy of the home country of the immigrants?

IBD mentions one of the negative effects, the strengthening of the peso due to the inflow of dollars into Mexico. This is a version of Dutch disease, insofar as exports are now relatively expensive, but it's only a problem in my view if the government and central bank are fixing the exchange rate or otherwise mismanaging currency policies. (See this recent FRB Atlanta paper for more.) In short, if remittances are a problem for the peso, it's the fault of the central bank. We did not see there being much of an effect in Armenia.

There are other demand-type impacts of remittances that I could get into, but the IBD quote suggests a brain drain on Mexico. Most often it is the more educated of the sending country that choose to immigrate (as they face the largest wage differentials between sending and receiving countries), but that's not necessarily true for unauthorized immigrants. See, for example, this paper by Mora and Taylor on migration from rural villages in Mexico. When we looked at data for Armenia, we found that over half of emigrants had more than twelve years education (note that there are almost no restrictions on Armenian emigration to Russia, which is where less educated Armenians would seek work in construction, for example.)

There's the possibility of benefits. Emigrants may return home and bring new skills and financial capital with them. They may stay in the receiving country but create trade networks with the sending countries, helping both. But the balance of the evidence I've read indicates that the net effect on Mexico is negative.

Last, thinking about supply a little more, what's the effect of remittances on the work effort of the families receiving them? Imagine the family deciding it will send one of its children overseas to earn money, remit the funds back to the home family, and allow the home family to supply less labor. Is it "nonsense on stilts" to think this is a bad thing? How will Mexican productivity improve to the point that its educated workers will be better employed in Mexico if human capital is continually shipped abroad? The answer depends on whether you think there are positive externalities to human capital development. I don't think that's a settled question.

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