Why are immigrants sending less money home?

Rafael Pampillón. Professor. IE Business School

6 May 2008

From October2007, the amount of money immigrants in Spain send back to their home countries has been steadily falling due to economic slowdown here.

Remittances sent by immigrants play an important role in the development of poorer countries. However, since the end of last year, remittances sent by immigrants residing in Spain have started to fall. This is a bad sign for the immigrants’ countries of origin because Spain is the European country whose immigrants send the highest number of remittances to their countries of origin, ahead of Germany, France and the United Kingdom. If this trend is confirmed, Latin America and the rest of the world will suffer the consequences of the Spanish economic crisis.

In 2007, immigrant remittances sent from Spain broke all records: €8,135 million, almost 30% up on 2006. As is well known, these remittances have an extremely positive macroeconomic impact on the immigrants´ countries of origin. Furthermore, remittances received, for example, by Latin America total more than foreign investments and aid for development. In addition, these remittances have the benefit that they do not bear the conditioning factors which, in many cases, apply to aid for development and they do not involve the interest payments and dividends required by foreign investments.

However, according to the figures provided by the Bank of Spain, there has been a reduction in the remittances sent in recent years. This is a consequence of the deceleration of economic activity in Spain, increasing unemployment, especially among the immigrant population. This is one of the main reasons why the upward trend of remittances was reversed as from October 2007, coinciding with the Spanish construction crisis.

Indeed, in October 2007, remittances sent from Spain totalled €770 million (monthly historic high), but in November, they fell by 6% (724 million) and, in December, they fell again by 4% in comparison with November when only €698 million were sent. In January 2008, according to figures published by the Bank of Spain, they have fallen once again, this time by 4.5% in comparison with December, taking the figure to 667 million.

It can be argued that in many countries the dollar is used as the reference currency and that the value of the dollar in comparison with the euro has depreciated, which means that fewer euros are needed to send the same amount in dollars. However, it is also true that the depreciation of the dollar is something that has occurred for a number of years and yet the remittances increased very rapidly.

It would appear that that if the level of economic activity falls, remittances also fall, especially in sectors that employ a high number of immigrants, such as construction and services. The problem of higher unemployment in Spain, especially among immigrants, is coupled with a big increase in inflation and high interest rates that are holding down the purchasing power of domestic economies. If the immigrants who reside in Spain have to spend more on food and fuel (due to the increase in prices) and they also have to pay more for their mortgages, due to the increase in the Euribor, it is logical that unemployed immigrants and those who have work will have less money available to send home.

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