Remittances and Their Impact on Mexico's Economy
Jalisco, Michoacán, and Guanajuato have been the states receiving the most remittances in the country for over ten years, but this does not mean that these contributions translate into economic benefits or improvements in the quality of life for their citizens. In terms of job creation and growth in gross domestic product (GDP), these three states have not met expectations, while informality predominates. Additionally, in Michoacán and Guanajuato, over 30% of the population lives in conditions of poverty and working poverty (which occurs when a household's labor income is insufficient to feed all its members), according to data provided by Mexico, ¿cómo vamos? and the National Council for the Evaluation of Social Development Policy (Coneval).
“For growth to happen, savings need to be converted into investment and infrastructure. However, these resources are often used more for day-to-day expenses than for investment. Therefore, [remittances] do not significantly contribute to economic growth,” states Gabriel Pérez del Peral, a professor at the School of Government and Economics at the Universidad Panamericana (UP). Informality and the lack of financial education play an important role in this lack of productive investment. “In Mexico, there are few efforts to support productive activities, not just in these states, which means that even when resources are available, they are not used to increase production, thus limiting development in areas that receive these remittances,” adds Sergio Castellanos-Gamboa, head of the Central-South area at the FAIR Center and a professor at the Business School at the Tecnológico de Monterrey. He also mentions that there are two recurring issues not related to productive activity: demographics and migration, along with problems of security and violence. Castellanos estimates that to attract human talent back to the country, priority should be given to investment, education, training, and innovation, estimating it would take around 15 years to see the first results. “As long as the gap in wages and purchasing power persists, there will always be incentives for people to seek opportunities in the United States,” Castellanos adds. The experts consulted agree that the challenge for public policy is to understand how remittances flow to incorporate this capital into the formal economy.
Editor's Note: This information is originally published in the magazine Expansión, corresponding to October 2024, 'The 100 Most Important Businesspeople in Mexico'.Remittances represent an important source of income for many families in Mexico, but it is crucial that they are directed towards investment and productive development. Promoting financial education and encouraging the formalization of the economy could help transform these transfers into a driver of growth and economic stability, thereby benefiting the communities that receive them. The key is to channel capital towards opportunities that generate jobs and strengthen the local economy.
