Understanding the Impact of Remittances on Mexican Households
According to Eduardo Loria, the coordinator of the Center for Modeling and Economic Forecasting (Cempe) at the Faculty of Economics of UNAM, 88 cents out of every dollar received through remittances in Mexico over the past 24 years have been allocated directly to consumption.
Remittances and Household Income
Loria explained that a household receiving remittances has an average monthly income of 11,000 pesos, equivalent to approximately 550 US dollars. This income is based on an average transfer of what are known as “migradollars” at a current exchange rate of 20 pesos per dollar.
Potential Impact on Private Consumption
Should remittances slow down due to increased deportations, taxes imposed by the US government, or a weakening dollar, it would significantly affect private consumption, Loria warned.
Remittances and Poverty Reduction
The average monthly income for households below the poverty line, according to the former National Council for Evaluation of Social Development Policy (Coneval), is 4,680 pesos. Loria noted that households receiving remittances earn more than double this amount, allowing them to escape poverty.
Remittances vs. Foreign Direct Investment (FDI)
Unlike FDI, which primarily benefits wealthier entities like Mexico City, Baja California, the State of Mexico, and Nuevo León, remittances have a direct impact on poverty reduction for receiving households.
Key Questions and Answers
- What is the primary use of remittances in Mexico? Nearly 90 cents of every dollar received through remittances in Mexico go to consumption.
- How do remittances affect household income? Households receiving remittances have an average monthly income of 11,000 pesos (approximately 550 USD).
- What would be the impact if remittances decreased? A significant reduction in private consumption would occur, affecting poorer households more severely.
- How do remittances contribute to poverty reduction? Remittances help households exceed the income threshold for poverty, improving living conditions and offering better social and labor mobility opportunities.
- How do remittances compare to Foreign Direct Investment (FDI) in terms of poverty reduction? While FDI primarily benefits wealthier regions, remittances directly contribute to poverty reduction for receiving households.
Most Affected Entities
Loria pointed out that the most marginalized states, such as Chiapas, Guerrero, Michoacán, Zacatecas, and Oaxaca, would be disproportionately affected by any tax on remittions under discussion in the US Congress. In these states, remittances account for double-digit percentages of household income, with federal rates at 3.7% of the GDP.
For Guerrero, remittances represent 14% of the PIB; in Michoacán and Zacatecas, it’s 11%; and in Oaxaca, it’s 10%. None of these states lead in remittance receipts.
