Monday, November 16, 2009

Reverse remittances and sunk costs

After the economic crisis hit, I spent a considerable amount of time rebutting the conventional wisdom that Latin American--particularly Mexican--migrants would return home. I have not addressed that much recently because the empirical evidence is overwhelming and so fortunately you don't hear it much anymore. Fewer people are coming, but there is no mass return migration.

Today's New York Times further underlines that fact. Remarkably, many Mexicans are scraping together what they can to send to their relatives in the United States. Why these reverse remittances?

Still, although a study by the Pew Hispanic Center from July showed a sharp decrease in the number of Mexicans heading north, there has been no sign of a mass exodus of migrants back to Mexico. Immigrants’ families say it took great effort to scrape together the thousands of dollars needed to send relatives to the United States, a sum that includes the fees charged by the people who help them sneak in.

“It’s expensive to cross, and it was a great sacrifice for us,” said Mr. Salcedo, 43, who has sent about five wire transfers to his son Alfonso, 18, who this year lost his job as a cafeteria dishwasher.
Basically, this argument is about sunk costs. Once you've put in that much, you do not want to give it up.


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