NotSneaky on remittances

Will Wilkinson has the scoop.  NotSneaky writes:

Bottom line is that most of the so called “gains from remittances” are
straight up gains from IMMIGRATION. Or in other words, they are gains
from the fact that some person from a poor household in a poor county
has managed to make their way to a rich country and now has a richer
income. Strictly speaking the gain from remittances is just the gain
from INTER-HOUSEHOLD reallocation of income between the migrant and
those who stay behind, not the overall increase in household income due
to migration.

This is oh so tricky and of course we must refer back to the 1920s debates on the "transfer problem," involving Keynes, Ohlin, and others, so ably surveyed by Jacob Viner’s Studies in the Theory of International Trade.

Let’s say a Mexican in Texas sends pesos in his pocket back home.  His family benefits and he gets the warm glow but for the nation as a whole that’s just inflation and a redistribution of wealth.  How about if he sends dollars back home?  Well, he converts through pesos, the real Mexican exchange rate appreciates, and Mexican exporters are penalized, to some extent offsetting the family gains.

How different are the two cases?  Ha!  That would make a nice exam question. 

Does it matter if the receiving family plans to spend the money on imports or does that not matter?  Does it matter if the big hotels in Cancun — tourism is Mexico’s largest export sector — are foreign-owned?  The clock is ticking…

Ultimately NotSneaky has the correct intuition that the gains are to be found in the immigration itself, not the subsequent transfer.  Beware double counting.  Here is my previous post on remittances but please note the comments on this post are for remittance talk, not a general discussion of immigration.


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