The Role of Social Capital in the Remittance Decisions of Mexican Migrants from 1969 to 2000

Abstract

Working Paper 2004-29 November 2004 Abstract: from migrants in the United States play a major role in the Mexican economy. This paper analyzes the role that different types of social capital play in the remittances decisions of Mexican migrants. Both the decision to remit and the decision on how much to remit are analyzed. The model, based on the idea of enlightened altruism, assumes that the migrant makes his decisions based on his own well-being as well as that of his household in Mexico and his community in Mexico. Social capital is defined as the resources one gains from relationships and networks. Four different types of social capital are identified in this paper: hometown-friendship networks in the United States, family networks in the United States, other-ethnicity-based networks in the United States, and community networks in Mexico. Social capital from friendships proves to be very positively significant in both the decision to remit and how much to remit. However, for all of the observations, familial social capital is not significant in either the decision to remit or how much to remit, although familial social capital has a positive role in both tests. Other-ethnicity-based social capital negatively influences both decisions and is significant in both as well. Social capital in Mexico has a significant negative impact on the two remittance decisions. Beyond social capital, this paper provides insight into other factors that affect remittance decisions including income, bank accounts, proximity to Mexico, exchange rate, interest rate differential, community infrastructure, the number of members in the Mexican household, Mexican household consumption, and time trends. In addition, to investigate time trends further, separate regressions were run on those observations where the last migration took place before 1991 and those whose last migration occurred after 1990. JEL classification: F22, O10, O54, Z13 Key words: remittance, social capital, immigration, Mexico 1. Introduction The Inter-American Development Bank estimates that in 2004 more than $30 billion will be sent to the countries of Latin America and the Caribbean from emigrants currently residing and working in the United States of America (Remittances from the United States). The dollars that are sent to a country from its workers abroad are called remittances. Mexico is the largest recipient of remittances from its citizens who are working outside of the country, it received $13 billion in 2003 (Orozco 2004 p.3, Remittances by Selected LAC Countries). are an essential component of the Mexican economy. In fact, in 2001 remittances were twice as large as the revenues from farm exports and a third greater than income from tourism. For Mexico, it is the second largest source of foreign exchange behind petroleum sales abroad (EFE 2002). Those concerned with Mexico's development understand the potential for remittances to play a major role in the growth of this emergent nation. About 42 percent of remittances are received in places with a population of less than twenty-five hundred (Migration News 2002). One of every ten households in rural Mexico depends on remittances from family members who live and work in the United States (Kraul 2001). With such a large amount of money crossing the border, remittances have become a salient issue in both the economies of the United States and Mexico. Many studies have analyzed the effects of various factors on remittance behavior. This study intends to explore various types of migrant social capital and investigate if and how they significantly affect Mexican migrants' remittance decisions. The second section discusses previous remittances models and theories on the definition and role of social capital. In section three I will develop the theoretical model that I will be using. Section four describes the data set from the Mexican Migration Project (MMP). …