International Migration, Remittances, and the Impact of the Great Recession on Rural Mexico

Introduction:
This chapter uses a local economy-wide model to evaluate impacts of the 2008–9 global recession in rural Mexico. The model is calibrated using household panel data; a recursive-dynamic version of the model makes it possible to examine long-term as well as short-term impacts. The recession’s immediate effects get transmitted to rural Mexico through migrant remittances, which fall by an estimated 45%. Simulations reveal that each dollar of lost remittances reduces nominal income in rural Mexico by $1.73, as economic activity in local economies contracts. Households without migrants lose 33 cents of income per dollar of remittances lost by households with migrants. Declines in consumption prices partially mitigate welfare losses in the short run. In the long run, lower savings and investment compound the recession’s negative impacts and lead to a convergence of incomes between households with and without migrants.

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