Immigrants and guest workers from developing countries send substantial sums of money back to their home countries as remittances. These sums are greater in magnitude than foreign aid.

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Remittances as a second-order effect

Remittances are a side benefit of migration that usually accrue to the family members of people who migrate to other countries. Remittances form a part of the utilitarian case for free migration, and in particular they counter concerns about brain drain. However, they are not the most important part of the case for open borders. As Michael Clemens notes in his paper Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?, remittances are a second-order effect of migration:

Global flows of remittances are rising toward $400 billion per year (Mohapatra, Ratha, and Silwal, 2011). This trend has helped to launch a large and valuable research literature, presented and discussed by Dean Yang in this issue. But remittances are typically a small fraction of emigrants’ foreign wage, especially for permanent emigrants (van der Mensbrugghe and Roland-Holst, 2009). To a first approximation, remittances are intrahousehold transfers that cross borders, and the reasons that people send remittances (Rapoport and Docquier, 2006) are broadly the same as the reasons people make other intrahousehold transfers (Laferrère and Wolff, 2006). If a Mexican woman experiences an income gain from working in Mexico, the whole value of that gain adds to her household’s welfare—both the portion she consumes and the portion she shares with her husband. This social welfare calculation is unaffected if she experiences an income gain by stepping over the Mexican border into Texas.

In short, barriers to emigration have a first-order effect on welfare; any barriers to flows of remittances have only a second- or third-order effect on welfare.


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