1. Mexican Immigrants’ Remittance Behavior
and its Affect on Financial Crisis Propagation
by
Cody D’Angelo
ECON 4999
Dr. Wolfgang Keller
2 May 2009

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1 Introduction
Remittances would not exist without the level of globalization that we see today.
Globalization allows countries to work together to increase productivity around the world
through behaviors that include: increased trade, foreign direct investment, capital flows,
the spread of technology, and most important to this paper, migration. Migration enables
one to emigrate from their home country and join the work force in another country. It is
common knowledge that this can be done through either legal or illegal channels. Either
way, migration plays a huge role in today’s global economy and must be examined in the
process of studying the 2008/09 financial crisis. There are many factors that may
influence a person’s decision to migrate; however, in many cases, one of the main goals
is to send money to relatives back home; a practice known as remittance. Due to its
proximity to the United States, Mexico and its immigrants’ remittance behavior will be
examined to a great extent in this paper. Migration’s large impact on international
economics is related to remittance behavior which has directly affected the propagation
of the 2008/2009 financial crisis.
2 Background Information
Remittances have become a crucial part of Mexico’s GDP. According to the Center
for United States and Mexico Immigration Analysis, remittances are Mexico’s second
largest source of foreign income next to oil, surpassing even Mexico’s massive tourism
industry. In 2005 it was estimated that income from remittances alone totaled around $20
billion (CUSMIA). Nearly complete dependence on foreign income has put the country
in a particularly poor social and economic position as global economic conditions have

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worsened. In Mexico, the third largest trading partner with the United States and the
ninth largest economy in the world, over 40% of the population lives below the poverty
line (CUSMIA). This is the direct result of failed economic and migration policies and is
sure to worsen with this recession.
3 Mexican Economic History
Mexico and the rest of the Latin American region have experienced multiple declines
in economic productivity throughout their troubled and storied histories. The first major
decline came after the 1980s. According to Mark Weisbrot and Luis Sandoval, Latin
America and Mexico have encountered horrendous economic growth over the past 25
years, and “to find a 25-year period even close to this kind of a failure, one has to go back
to 1905 and select a 25-year period that includes both World War I and the Great
Depression.” This great claim accurately depicts the economic woes of a troubled region.
Mexico, in particular, has suffered dearly since experiencing economic growth from
the 1960s to the 1980s. Weisbrot and Sandoval claim that if Mexico had “continued to
grow at its pre 1980s rate, the country would have a per capita income at the level of
Spain today.” This maintains that if Mexico hadn’t seen such economic turmoil post
1980, we would not see such a high dependence on foreign income, and political border
issues might not be the disaster they have become as of late.
Adding to their economic struggle, in 1994 Mexico signed the North American Free
Trade Agreement (NAFTA). The signing of the agreement led to a decline in Mexico’s
agricultural sector as well as a decline in domestic business as both industries could not
compete with those of the United States (CUSMIA). It was thought that NAFTA would

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“both modernize Mexico’s economy and increase employment levels as U.S. business
interest interests moved their operations to Mexico;” however, most United States
businesses utilized cheap labor found in Asian countries like China and India (CUSMIA).
4 Mexican – American Relationship
As the popular saying goes, “when Uncle Sam sneezes, Mexico catches a cold.”
Figure 3 shows a distinct relationship between Mexico’s Global Index of Economic
Activity and the United States’ Industrial Production Index. The dip in economic output
around 2001 was a direct result of the U.S. recession between 2001 and 2002. True to the
saying, as the United States went into a recession, Mexico followed suit. This recession
was short lived, and as the United States bounced back so did Mexico. The figure shows
that Mexico continued to grow at rates proportional to those of the United States until the
most recent economic downturn. The recession of 2008/2009 brought about an
unprecedented global economic crisis that includes the United States and Mexico.
FIGURE 1: Economic activity in Mexico and the U.S.
Source: Weisbrot

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5 Mexican Remittances
The number of Mexican immigrants living in the United States has increased steadily
since the 1960s. Gordon Hanson reports that the number of Mexican immigrants “as a
share of Mexico’s population” has grown from 1.5% in the 1960s and 1970s to 10.2% in
2005. This large increase in immigrant population is due in part to the difficulty of
maintaining control of migration along the large Mexican/American border. The
dramatic increase in Mexican population in the U.S. has proved to be detrimental to
Mexico’s labor force. A great increase in migration and decrease in labor force over the
years is a testament to Mexico’s increased reliance on remittances.
As stated earlier, Mexico relies heavily on remittances which are the country’s
second-largest source of foreign Income next to oil (Watson). Remittances had been
steadily increasing since the Mexican Central Bank began collecting data in 1995, only
14 years ago. Given that record collecting lacks longevity, there is not a wealth of data
on remittances; however, there is enough data to draw correlations between this recession
and the 2001/2002 recession.
6 Mexican Economic Downfall
In 2008, remittances dropped for the first time since Mexico started collecting data.
The Mexican Central Bank declared that remittances dropped 3.6 percent from $26
billion in 2007 to $25 billion in 2008 (Watson). Julie Watson discovered that the amount
by which remittances dropped is “nearly twice what the government had expected for the

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year.” The fact that remittances dropped more than the Mexican government had
expected is troubling as many families were most likely caught off guard by the abrupt
change in cash flow.
Remittances are forecasted to continue to drop in 2009. Mexican economic analyst
Gustavo Hernandez told Business News Americas that “remittances would drop to $22.6
billion in 2009 from $25 billion [in 2008] as a result of the economic downturn in the
U.S.” Further decline is sure to gravely impact Mexico’s economy which relies so
heavily on remittances. Hernandez went on to state that “the estimated drop in
remittances this year will reflect the effect of a tight job market for Mexicans living in the
U.S., particularly in the construction and manufacturing sectors.” Construction jobs are
being lost at a high rate in the U.S. as expansion practically stands still. This was not the
case in previous recessions.
7 2001 Recession
The 2001 recession was caused by a few factors, but at the forefront was the bursting
of the stock market bubble. According to Dean Baker, “an unprecedented run-up in the
stock marked propelled the U.S. economy in the late nineties.” This bubble burst in 2001
when the NASDAQ crashed in early 2000 and the Dow Jones Industrial Average crashed
on September 17, 2001 following the September 11th terrorist attacks (Wee). While these
events were certainly strong enough to send our economy into a recession, they were not
strong enough to burst the increasing housing bubble. This left construction jobs intact
throughout the 2001 recession as new housing and other construction was still in high
demand.

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The 2001 recession officially lasted 8 months and showed the United States that its
economy wasn’t impervious to fluctuation. According to the International Monetary
Fund, Mexico’s real GDP growth in 2001 was -0.2% and the United States’ real GDP
growth was 0.8%. This was a large drop in growth from the previous year in the U.S. and
even larger in Mexico. In 2000, the U.S. real GDP growth rate was 3.7% and Mexico’s
was 6.6%. Figure 2 shows that Mexico was so severely impacted by the 2001 recession
that it went from seeing its second largest growth year since the Mexican Peso Crisis of
1994 to its first negative growth year since that crisis. Despite such a drastic economic
downturn, in this recession remittances to Mexico continued to increase.
FIGURE 2: U.S. and Mexican real GDP growth 1994-2002
Source: IMF
8 Construction Sector
The United States construction sector employs a large number of Mexican
immigrants. According to the Bureau of Labor Statistics, of the 14,806,000 people who
worked in “natural resources, construction, and maintenance operations” in 2008, 25%
were of Hispanic or Latino ethnicity. As a subcategory, there were 1,651,000

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“construction laborers,” of which 44.1% were of Hispanic or Latino decent in 2008. This
data does not show the percentage of people who have immigrated or had been born in
the United States; however, it is clear that with such large shares of this industry, many of
the Hispanic and Latino laborers are likely legal or illegal migrant workers from Mexico.
With such a large share of this industry, fluctuations are sure to impact Mexican workers
and their remittance behavior.
FIGURE 3: U.S. Construction Data
U.S. Total Construction 2001-02 vs. 2007-08-09
(seasonally adjusted)
1,200,000
(in millions of USD)
Total Construction
2001
2002
1,000,000 2007
2008
2009
800,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month
Source: Census.gov
Figure 3 shows the relationship of total United States expenditure on construction
between 2001-2002 and 2007-2009. From 2002-2007 the United States experienced
economic expansion; as a result, construction projects increased. The figure shows that
in the recession of 2001, total construction was not affected. Total construction actually
increased throughout the year and continued strong into 2002. The recession of
2008-2009 has had a much different affect on the construction sector. It is clear that

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overall expenditure on construction in the United States has dropped at an alarming rate
since about July of 2007. Even more troubling is how fast it has dropped over the past
few months. In the 2001-2002 construction data, the months of October – February
showed a reasonable increase in construction expenditure, whereas the months of October
– February of 2008-2009 showed a drastic drop. The construction industry has been hit
hard by the 2008-2009 economic crisis and is taking its toll on migrant workers.
9 2008-2009 Recession
The United States is experiencing one of its worst recessions on record. Overall
production has decreased, people are losing jobs at an alarming rate, the government is
reacting with drastic measures, and nothing seems to be improving. The recession is a
direct result of the housing bubble that burst and left the United States with a sub-prime
mortgage mess. This recession has become global and one of the main ways that it has
spread to other countries is through remittance practice.
Mexico has been impacted more by this recession than the recession of 2001-2002
because of its devastating impact on the United States construction sector. The bursting
of the housing bubble has translated to immense job loss in the construction industry. As
construction jobs are lost, Mexican migrants are less able to send money home.
The 2008-09 recession has been negatively impacting our economy for months and is
not expected to rebound any time soon. The real GDP growth rate in the United States
has dropped from 1.1% in 2007 to -2.8% in 2008. This is the first time that the United
States has experienced a negative growth rate since the early 1990s. Mexico’s real GDP
growth has once again followed United States trends and dropped to -3.7% in 2008 down

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from 1.3% in 2007. Figure 4 shows the drastic drop in GDP from both countries as a
result of our current crisis. Compared to the 2001-2002 recession, GDP growth rate loss
is much more drastic with negative percentages in both Mexico and the United States.
FIGURE 4: Real GDP growth rate 2000-2009
Source: IMF
10 Remittance Impact
FIGURE 5: Total Mexican Remittances
Total Remittances 2001-02 vs. 2007-09
3000.00
(in millions of USD)
Total Remittances
2500.00
2000.00
2001-02
1500.00
2008-09
1000.00
500.00
0.00
v
l
n
n
n
c
g
p
r
ar
ar
b
b
ct
ay
Ju
Ap
No
Ja
Ju
Ja
Au
Se
De
Fe
Fe
O
M
M
M
Month
Source: Mexican Central Bank
Overall, the 2008-09 global economic crisis has impacted the world in a great way.
While total remittances continued on their regular pattern of growth through the 2001

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recession, they have fluctuated and actually fallen for the first time in history with the
2008-09 crisis. Figure 5 shows remittance data from the Mexican Central Bank from
January 2001 – March 2002 compared to data from January 2008 – March 2009. The
graph shows that remittances dropped drastically since November 2008 and have only
recently began to grow towards the amount that they were at before.
Immense job loss, especially in the construction sector has led to this large drop in
remittance behavior. Lower remittance activity has allowed the 2008-09 crisis to
propagate to Mexico as that country has witnessed a decline in GDP growth much larger
than the loss observed in the 2001 recession. All evidence points to the possibility that
Mexico will not see an improvement in GDP until the U.S. economy stabilizes and
remittances increase.
11 Conclusion
Mexico and the United States, despite being close in geography, might as well exist
on two different planets in terms of economy. Mexico is able to use its geographic
location to take advantage of the United States’ constant status of the economic
headquarters of the world. The large border is hard to patrol which gives Mexicans an
opportunity to migrate by whatever means necessary to a wealthy country with a lot to
offer so they can earn money for their families back home. For the first time in the
history of this relationship, Mexican migrants are unable to take full advantage of this
system as the United States is in dire economic turmoil and jobs are unavailable for
everyone.

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Globalization allows crisis propagation to happen in many ways. Remittance
behavior is one in a slew of methods for the financial virus to metastasize to the global
economy. This crisis has shown us that any country that relies heavily on remittances
coming from a wealthier country is sure to feel the impact of that country’s economy,
whether it is positive or negative.
Since the U.S. economy is so important globally, there are many ways in which the
world will feel the impact of the collapse of our housing bubble and the ensuing recession
for years to come. Remittance behavior is not a bad thing; if the U.S. economy happens
to rebound and begin to expand, remittances will enable that prosperity to propagate in a
similar manner as the 2008-09 crisis. The 2008-09 crisis has taught us that it is important
to keep other countries in mind when dealing with matters of our own wealth. Our
economic situation directly impacts other countries as well as the rest of the world as it
propagates through globalization.

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Works Cited
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2006 Web.2 May 2009. <http://www.bepress.com/cgi/viewcontent.cgi?
article=1161&context=ev>.
"CUSMIA." 2007. Center for United States and Mexico Immigration Analysis. 1 May
2009 <http://www.cusmia.org/QuickFacts.php>.
"Employed persons by detailed occupation, sex, race, and Hispanic or Latino ethnicity."
bls.gov. 2008. Bureau of Labor Statistics. 2 May 2009
<ftp://ftp.bls.gov/pub/special.requests/lf/aat11.txt>.
"FGI Expects Remittances to Decline 10% in 2009." Business News Americas 27 MAR
2009 Web.2 May 2009.
Hanson, Gordon and Craig McIntosh. "The Great Mexican Emigration." AUG 2008 1-41.
Web.09 APR 2009. <http://irps.ucsd.edu/assets/015/8800.pdf>.
"IMF Data Mapper." 2009. International Monetary Fund. 1 May 2009
<http://www.imf.org/external/datamapper/index.php>.
"Revenues by Workers' Remittances." banxico.org. MAR 2009. Mexican Centaral Bank.
2 May 2009 <http://www.banxico.org.mx/SieInternet/consultarDirectorioInternet
Action.do?accion=consultarCuadro&idCuadro=CE81&locale=en>.
"Total Construction Spending." census.gov. 02 FEB 2009. U.S. Census Bureau. 2 May
2009 <http://www.census.gov/const/www/totpage.html>.
Watson, Julie. "Yearly Mexican Remittances Drop for First Time." Associated Press
Financial Wire 27 JAN 2009 Web.09 APR 2009.

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Wee , Heesun . "U.S. Stocks Dive, with Dow Posting Record Point Loss." BW Online. 17
SEP 2001. Business Week. 2 May 2009 <http://www.businessweek.com
/investor/content/sep2001/pi20010917_6288.htm>.
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