On the Remitting Patterns of Immigrants: Evidence from Mexican Survey Data

1. On the Remitting Patterns of Immigrants:Evidence from Mexican Survey Data Catalina Amuedo-Dorantes (San Diego State University) Cynthia Bansak (San Diego State University) Susan Pozo (Western Michigan University)

2. Importance of Remittances • Several agents have shown an increasing interest in understanding remitting practices by immigrants: • Banks: who recognize the untapped potential for business • Economists: who have noted the growing magnitude of these flows and their potential to impact economic development of receiving regions • Government officials: who seem interested in encouraging that these money transactions migrate to formal markets to thereby reducing opportunistic use of informal channels by crimminals.

3. Overview of Presentation • Background models for immigrant remitting practices • Data Sources • Migrant Characteristics • Who remits? • How much? • Why do they remit? For what purposes? • Transfer mechanisms to remit money home • Mexican immigrants’ banking patterns

4. Background Models for Immigrant Remitting Patterns • Altruism (Stark 1991): Remittances respond to host and home country economic circumstances. Remittance decay. • Consumption Smoothing (Rosenzweig and Stark 1989): Migration takes place to diversify household earnings. Remittances respond to home country economic conditions. • Target Saving (Ahlburg and Brown 1998, Glytsos 1997): Mostly temporary migrants. • Insurance (Amuedo-Dorantes and Pozo 2004): To cover for unforeseen migration risks. Also to maintain a good standing with the family back home. Remittance decay. • Loan Repayment (Connell and Brown 1995): Usually at the start of migration experience.

5. Mexican Migration Project (MMP93): Contains information from 16,000 households in 93 representative communities in 17 of Mexico’s 31 states. A complete life history is gathered for the household head, which includes detailed information on their past U.S. trip if they ever migrated. We use data 5,000 migrating household heads. Encuesta Sobre Migración en la Frontera Norte de México (EMIF): Conducted in eight different cities along the U.S.-Mexico border. Accounts for more than 90 percent of the migration flows between Mexico and the U.S. A representative sample of individuals voluntarily returning from the United States on foot, by train, car, bus and plane are extensively interviewed about their migration and work experience. We use data on 6,000 returning migrants interviewed between 1993-2000, who remitted money home. Data Sources

6. Migrant Characteristics (MMP93) • 71% of migrating household heads remitted on a monthly basis an average of $450/month, about 40% of earnings • 64% saved and brought back home an average of $2800 at the end of their last U.S. migration spell • 33 years old on average • 5 years of schooling • 27% were fluent in English • 95% worked in the U.S., 40% in agriculture, 40% in manufacturing, and about 20% in service occupations • 78% left spouses behind • Average length of their last U.S. stay is close to 3 years

7. Who Remits or Brings Savings Back Home? Remitters versus Non-remitters: • Male • Older • Undocumented • Married • Less educated and less fluent in English • Less likely to have a bank account in the U.S. • Shorter U.S. stays • More likely to originate from rural communities in Mexico with fewer banks

10. Remitters (only) are more likely to be: Male Older Spouse in Mexico Fluent in English Less likely to hold agriculture jobs 6% more likely to be banked Remitters (only) vs. Savers Bringing $ Back (only)

12. How Much do They Remit? Trends by Decade Steady decline, why? • Improvements in Mexican standard of living • Changes in the mix of temporary and permanent migrants by cohort of entry, with more recent migrant cohorts staying longer in the U.S. (Figure A)

14. How Much do They Bring Back Home? Trends by Decade

15. How Much do They Remit? Trends by Duration of Migrants’ Stay Remittance decay: • Weakening of ties • Settlement in U.S. • Longer staying migrants in recent migrant cohorts • Less need of insurance over time

16. How Much do They Bring Back Home? Trends by Duration of Migrants’ Stay • Accumulation of savings over time

17. Undocumented are more likely to remit or bring money back home: More need for insurance Demographics: Married Spouse in Mexico Dependents Documented remit more ($69) and bring more money back home ($510): Higher educational attainment English fluency Banked status Immigrants’ Money Transfer Practices by Legal Status

19. Purpose of Migrants’ Remittances and Savings Brought Back Home • Main purpose: Health expenses • Followed by: Food and housing expenses.

22. Average Dollar Amount Remitted by Primary Purpose Stated for Remitting • Special event • Investment purposes ($500+): livestock, agriculture inputs, savings, lot or house

23. Average Dollar Amount Brought Back According to Primary Purpose • Recreation & the purchase of lot/house ($4000+) • Livestock, savings, education ($3000+)

24. Choice of Money Transfer Method (EMIF) • 70% use non-bank money transfer firms (MTFs) • 13% use informal methods, i.e. friends, family, mail • 10% use banks

25. Trends in Migrants’ Choice of Money Transfer Method (EMIF) • Significant decline in the use of MTFs • Increase in bank usage • Slight decrease in the use of informal methods

26. Migrants’ Choice of Money Transfer Method by Origin (EMIF) Infrastructure at origin: • MTFs serve both rural and urban • But, fewer migrants from rural areas use banks • Whereas fewer migrants from urban areas use informal methods

27. Figure 10 Money Transfer Method Used by Immigrants’ Legal Status Documented in 1993/94 Documented in 1999/2000 4% 16% 13% 13% 77% 65% Undocumented in 1993/94 Undocumented in 1999/2000 3% 9% 18% 20% 75% 68% Bank Non-bank Money Transfer Firms Family, Friends, and Mail Other Method Source: Encuesta sobre Migracion en la Frontera Norte de Mexico, various years Migrants’ Choice of Money Transfer Method According to their Legal Status (EMIF) • In 1993-94: • Undocumented used more informal methods, less bank use • By 1999-2000: • Undocumented cut down in the use of informal methods and increased bank use

28. Mexican Migrant’s Banking Trends • Steady increase over time from 1% to 35%

29. Mexican Migrant’s Banking Trends by Legal Status • Fewer undocumented are banked

30. Who Are the Banked? • Less likely to remit or bring money back home • While the dollar amount remitted is not much different, they bring back significantly more than the unbanked (about $4951) • Young, documented, and fluent in English • Fewer have a spouse or dependents back in Mexico • Professionals & technicians working in manufacturing or services • Earn about $700/month more than the unbanked • Longer U.S. stay – greater U.S. assimilation • Come from communities with banks – familiarity with banks

32. Summary • Plethora of reasons for remitting money back home: altruism; accumulating precautionary savings; asset accumulation; income and risk diversification; insurance; and loan repayment. • Amount remitted for many consumption purposes are modest relative to those remitted for investment purposes – importance of remittances for development • Evidence of remittance decay among more recent immigrant cohorts • Evidence of remittance decay over longer U.S. stays, whereas the amount brought back home increases with longer-staying immigrants

33. Summary - Continued • Propensity to remit is higher among the undocumented, immigrants who leave spouses and dependents behind, less educated migrants with lack of English fluency, and the unbanked. • Migrants remit, on average, 40% of their earnings • MTFs continue to be the preferred money transfer mechanism; however, bank use has quadrupled from 4% to 17% from 1993 to the year 2000 • Banked immigrants remit less, but bring back sums 3 times as large as the unbanked • Overall, we observe a convergence in the transfer methods used by documented and undocumented immigrants