As the US Senate debates immigration reform, mention is often made of the money which migrants send home to their families. In a recent article titled
Latin America's Faulty Lifeline, Catherine Elton at the MIT Center for International Studies argues that an economy propped up by remittances may be hiding deep structural problems. She points in particular to El Salvador:
In El Salvador, where studies show that anywhere from 10 to 40 percent of the population has emigrated, remittances are an astounding 16 percent of the GDP. They are 133 percent of all exports, 655 percent of foreign direct investment, and 91 percent of the government budget.
While El Salvador's migration patterns to the United States are usually linked to the nation's bloody civil war in the 1980s, migration rates during the late 1990s and first half of this decade were higher than during the armed conflict. Once celebrated, along with Chile, as the honor roll student of the Washington Consensus, El Salvador went from the country with the second highest growth in region in the early 1990s to the second lowest, behind Haiti, in the second half of the decade.
According to some Salvadoran economists, remittances are not spurring growth and development because they are spent overwhelmingly on consumption. El Salvador's level of private consumption as a percentage of GDP is the seventh highest in the world. But some of the remittance literature says this isn't a problem, maintaining that even when remittances are spent for consumption, they are multiplied throughout the local economy, supporting local industry and creating jobs.
Much of the literature describing this "multiplier effect" focuses on Mexico. In a small and very open economy like that of El Salvador, however, remittances aren't multiplying, some complain, because they leave the country as fast as they come in. Since embarking on the reforms, El Salvador's imports have gone from 27.7 percent of its GDP in 1990 to 42 percent in 2004. And when they don't produce new jobs in the home country, remittances actually cause migration, as people try to keep up with remittance-receiving neighbors....
In El Salvador, remittances are also said to have distorted the labor market, increasing wages in relation to neighboring countries, even while they have declined in real terms since the nation embarked on the reforms in 1989. High wages in El Salvador make neighboring countries more attractive for investment. And remittances are now provoking a scarcity of labor in some sectors of the economy because they allow many Salvadorans to live better without working at all than they could on the wages paid for agricultural or domestic work. In eastern El Salvador, farm owners are hiring Nicaraguan and Honduran migrants to fill the jobs Salvadorans won't take.
Immigration reform in the US is certainly needed and may help ensure the just treatment of millions of economic migrants, but it does nothing to solve the root causes of that migration. The cycle of migration and remittances may actually make it harder to stimulate economic growth in a way which will generate jobs that will keep people from leaving the country. If the US wants to stem the tide of migration, it must take significant steps, not just free trade agreements, to help El Salvador and other Latin American countries increase sustainable types of development.