Earlier this year, the Trump administration close USAID and reduces spending on international aid and development. Concerned development advocates – and keep worrying – that it would harm the economies of developing countries and have deadly consequences for some of the poorest people on the planet. This story made headlines earlier this year.
But Dean Yang, an economist at the University of Michiganclaims that “the Trump administration’s anti-immigration actions are likely to have an even greater negative effect on the economic development of the world’s poor countries” – and that story has gotten far less attention.
It’s not just that migration is one of the best-known mechanisms for lifting people out of poverty. Studies suggest that those who leave poor countries to work in rich countries like the United States often see a four to five times increase the amount they are able to earn, and sometimes much more.
What leads Yang to claim this is that immigrants to the United States send staggering amounts of money home to their families. These remittances, as they are called, have eclipsed the size of the official foreign aid that the United States spends on things like economic development, health care, and humanitarian aid.
In fact, the United States has been by far the leading source of remittances in the world. According to the International Organization for Migration, which works with the United Nations, immigrants to the United States have sent almost 80 billion dollars to their country of origin in 2022 (latest year of data available).
In an upcoming episode of Planet Moneywhich will be released on October 29, we dive into the disruption of these important financial flows in an era of immigration restrictions. While some countries, including Mexico, have already seen a sharp decline in remittances from the United States in recent months, others are seeing a rather surprising trend: a record increase. Our episode focuses on the causes and consequences of this surge and dives into the remittance economy.
However, this recent increase in remittances will likely only be a temporary blip. Remittances will likely decline in the near future, the sharp drop in immigration to the United States and the large number of immigrants already here who are being deported.
And this could have significant macroeconomic effects on many countries, particularly in Central America. For countries like Honduras, Nicaragua, El Salvador and Guatemala, remittances account of a narcotic share of their economy, ranging from around 20% to 27% of each country’s GDP. These nations are already politically and economically fragile, which is a large part of why so many of their citizens have immigrated to the United States. That’s one reason Yang believes crackdowns on immigration could have serious consequences in the developing world.
Stay tuned for our new episode of Planet Money this delves deeper into this story.
