If there is any political issue that could use a dose of scientific rigor, it is migration. U.S. immigration policy is widely regarded as a total mess, the European melting pot produces pelting mobs, and all over the world tall fences have been constructed to keep facts from entering the debate. One of the most far-reaching aspects of migration often gets ignored altogether: remittances--the money and gifts that migrants send back to families and friends. Studies have chronicled what individual beneficiaries do with the largesse, but the broader effect is only dimly understood. "No one has worked on it seriously," says social anthropologist Jorge Durand of the University of Guadalajara in Mexico.
That is finally starting to change. In December remittances were the topic of a special conference in Mexico City organized by the country's National Population Council and several U.N. agencies, and the World Bank highlights them in its flagship annual report, the 2006 Global Economic Prospects. Politicians have perked up, too. Mexican president Vicente Fox has called migrants--one in 10 of his citizens--"heroes" for their generosity.
The reason for all the attention is simple. Even though the average migrant sends back just a couple of hundred dollars a month, it adds up to serious money. The World Bank estimates that developing countries received $167 billion last year--twice as much as they got in foreign aid. Mexico's intake has quintupled in a decade, to $18 billion; labor is now the country's biggest export after oil. And that is just the amount flowing through official channels.
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To be showered with money seems like a happy arrangement for the receiving country. Yet in the 1980s remittances acquired a reputation among social scientists as "easy money" that, like an oil windfall, can rot out an economy. Case studies have found that recipients invest little of the money in farm equipment or business start-ups, preferring instead to go on shopping sprees. People grow dependent on the MoneyGram in the mail, and all that cash sloshing around pushes up inflation. Those not so lucky to have relatives abroad fall behind, worsening social inequality, and exporters' costs rise, making it harder for them to compete in global markets.
In the 1990s, though, Durand and others argued that case studies do not track the full effect of remittances as they ripple through an economy. Even if families do not invest the money, the businesses they buy from do, so remittances can jump-start growth. In one widely cited model, $1 of remittances boosts GDP by $3. The infusion of money makes a real difference in places where entrepreneurs have no other access to capital. Compared with alternatives to catalyze economic development, such as government programs or foreign aid and investment, remittances are more accurately targeted to families' needs and more likely to reach the poor.
Today the debate has settled into a "both sides are right" mode. Some towns achieve prosperity aided by remittances; others get trapped in a cycle of dependency. A number of cross-country analyses, such as one last year by economist Nikola Spatafora of the International Monetary Fund and his colleagues, have concluded that nations that rake in more remittances have a lower poverty rate--but only barely. A larger effect is to smooth out the business cycle, because migrants increase their giving during economic downturns in their homelands and scale it back during upswings. Averting the disruptive extremes of boom and bust can help bring about long-term growth.
One burning question is whether immigrants who sink roots into their adopted countries send less money. "Some people are actually saying that in Mexico remittances might stop in 10 years' time," says World Bank economist Dilip Ratha. Meanwhile his institution and others are working to procure good data. "When these flows are as large as they are and as important as they are," Ratha says, "it would be worth investing in a better database."
