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5. Migration and Remittances in Latin America and the Caribbean: Macroeconomic Stabilizers and Engines of Growth?

Chapter 5

Migration from and remittance flows to Latin America and the Caribbean (LAC)—usually with the United States as the host economy—have major economic and social ramifications for the migrants’ home countries. This chapter examines recent trends in outward migration from and remittances to LAC, as well as their costs and benefits. Outward migration in isolation may lower growth in home countries through reduced labor supply and productivity, but the remittances sent home by migrant workers serve as a mitigating factor, both by serving as a large and relatively stable source of external financing, notably in Central America and the Caribbean, and by helping cushion the impact of economic shocks. However, the region’s dependence on remittances primarily from the United States can pose risks to macroeconomic stability for cyclical reasons and, more importantly, from possible changes to immigration-related policies. Targeted reforms in home countries can help reduce outward migration and the attendant adverse consequences. In particular, structural reforms, aimed at leveraging the pool of high-skilled and highly educated workers to foster economic diversification at home would likely reduce “brain drain.” Similarly, given the key financing and stabilizing roles played by remittances, policies aimed at reducing transaction costs and promoting the use of formal channels of intermediation merit support.