Earlier this year, the Trump Administration shut down USAID and slashed spending on international aid and development. Development advocates worried — and continue to worry — that this will hurt the economies of developing nations and have deadly consequences for some of the poorest people on Earth. That story generated tons of headlines earlier this year.
But Dean Yang, an economist at the University of Michigan, argues “the anti-immigration actions of the Trump administration are likely to have an even bigger negative effect on the economic development of the world’s poor countries” — and that story has gotten much less attention.
It’s not just that migration is one of the best known mechanisms to lift people out of poverty. Studies suggest those who move from poor countries to work in rich nations like the United States often see a four-to-five fold increase in the amount they’re able to earn, and sometimes way more.
What leads Yang to argue this is that immigrants in the United States send a jaw-dropping amount of money back home to their families. These remittances, as they’re known, have dwarfed the size of official foreign aid that the US spends on things like economic development, health, and humanitarian assistance.
In fact, the United States has far and away been the number one source of remittances in the world. According to the International Organization for Migration, which works with the United Nations, immigrants in the United States sent almost $80 billion to their origin countries in 2022 (the last available year of data).
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In an upcoming episode of Planet Money, which will be released October 29, we dive into the disruption of these large financial flows in an era of immigration restriction. While some countries, including Mexico, have already seen a large drop in remittances from the United States in recent months, others are seeing a rather surprising pattern: a record-breaking surge. Our episode focuses on the causes and consequences of this surge and dives into the economics of remittances.
This recent surge of remittances, however, is likely only going to be a temporary blip. Remittances will likely drop in the near future, with the large decline of immigration to the US, and the large numbers of immigrants already here getting deported.
And that could have significant macroeconomic effects on a whole host of nations, especially in Central America. For countries like Honduras, Nicaragua, El Salvador, and Guatemala, remittances account for a staggering share of their economies, ranging from around 20 to 27 percent of each country’s GDP. These nations are already politically and economically fragile, which is a big reason why so many of their citizens immigrated to the United States in the first place. It’s one reason why Yang believes the immigration crackdown could have severe consequences in the developing world.
Stay tuned for our new episode of Planet Money that dives more into this story.
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