Understanding the Impact of Remittances on Mexico’s Economy and Safeguarding Their Future Impact

Photo: CLAUDIO CRUZ/AFP via Getty Images
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The Issue
Beyond providing supplemental income for Mexican households, remittances—funds sent by migrants to friends and families in their home country—provide a stable flow of developmental finance to the poorest subregions of the country, which have not historically benefited from international capital flows, such as development aid or foreign direct investment. Mexico, the world’s second-largest recipient of remittances, has seen a steady increase in the total volume of remittances received, primarily due to the strength of the U.S. labor market and concurrent wage growth among Mexican workers in the United States. Mechanisms to keep remittances secure are not impermeable to criminal organizations, which have been known to use small-increment deposits to launder gains from illicit economic activity, including drug trafficking. However, through increased U.S.-Mexico cooperation, both countries can strike the delicate balance between facilitating flows of remittances to promote development and financial inclusion and securing those funds from exploitation by illicit actors.
Introduction and Overview
Behind India, Mexico is now the second-largest recipient of remittances in the world. In 2023, Mexico received $63.3 billion in remittances, accounting for roughly 7.5 percent of global remittance flows and establishing the country’s position as the second-largest destination for such funds worldwide. Driven by Mexico’s history of emigration and the subsequent development of a significant and increasingly wealthy diaspora in its neighbor to the north, the flow of remittances to Mexico from abroad is notable not only for its size but also for its substantial growth in recent years, despite declines in Mexican emigration. In fact, the volume of remittances received by Mexican households increased by nearly 8 percent from 2022 to 2023, despite no corresponding growth in the foreign-born Mexican population in the United States. This growth can be attributed to dynamics in the U.S. labor market and changes in the characteristics of this type of transaction.
Remittances from abroad account for roughly 4.5 percent of Mexico’s total GDP and form the largest single source of foreign income for Mexico, outstripping the income brought in by any other individual source, including foreign direct investment (FDI) from the United States, tourism, and net manufacturing exports. The total value of remittances increased by roughly 32 percent between 2019 and 2023, rising by an average of 5 percent per year. As of 2022, the average remittance transaction sent to Mexico amounted to roughly $390—considering Mexico’s average monthly salary of $6,150 Mexican pesos (or roughly $297 U.S. dollars), such transactions can contribute a sizable portion (and sometimes the entirety) of a family’s total income.
Remittances provide a steady source of income to Mexico’s poorest households, which primarily use the money received to obtain basic necessities such as food, clothing, healthcare, and other household expenses. This income is particularly essential for the nearly 60 percent of Mexicans engaged in informal labor, who often lack employment stability and safety nets to ensure consistent income, exacerbated in the event of economic shocks like the Covid-19 pandemic. Beyond providing the income needed to afford basic expenses, remittances can also serve as a potential mechanism for development, providing households with the means to save money and make investments in education, upskilling, and community improvement. This developmental impact is particularly important given the correspondence of financial flows with regional developmental disparities present in Mexico. That is, while most FDI is directed to the industrialized northern regions of the country, most remittances are sent to the southern and central regions of the country, which have not reaped the full benefits of the international capital flows. Facilitating the flow of remittances is therefore critical to assisting Mexico in addressing developmental disparities, increasing financial inclusion for historically marginalized populations, and driving the economic growth necessary to lessen the gaps between Mexico and its North American trading partners.
The expanding volume of remittance transactions provides more than economic benefits to regular Mexicans; it also presents ample opportunity for exploitation. Criminal organizations take advantage of the small-increment nature of remittance transactions to evade oversight regulations and launder money related to drug trafficking and other illicit income streams, a practice which has increased in frequency since the Covid-19 pandemic disrupted cross-border movement and the associated traditional methods of bulk cash smuggling. As the fentanyl crisis, illegal immigration, and cartel-related violence become increasingly prominent points of tension in the United States-Mexico relationship, the expanding flow of remittances between the two countries could face increasing scrutiny from policymakers. While such scrutiny is necessary to ensure that Mexico and the United States can halt the flow of financing to violent criminal organizations, care must be taken to ensure that regulations do not impede the flow of remittances as a crucial economic lifeline to Mexican households.
Facilitating the flow of remittances is therefore critical to assisting Mexico in addressing developmental disparities, increasing financial inclusion for historically marginalized populations, and driving the economic growth necessary to lessen the gaps between Mexico and its North American trading partners.
Changes in leadership both in Mexico and the United States in 2024, as well as the upcoming review of the United States-Mexico-Canada Agreement (USMCA) in 2026, could lead to policy changes that alter the ease of sending remittances between the two countries. In the coming years, increased cooperation between the United States and Mexico could enable both to strike the delicate balance between harnessing the developmental potential of remittances and securing the flows from potential exploitation by illicit actors. This brief provides an overview of the role of remittances in Mexico’s economy and the U.S.-Mexico economic relationship, the increasing importance of remittances for criminal organizations and other illicit actors, and the current political context in which remittance policies may be subject to change. It will then conclude with a series of policy recommendations that aim to bolster the security of remittance flows while ensuring they reach their development and poverty-mitigating potential.
Remittances as a Mechanism for Development
Remittances are crucially important as a potential driver of development. Beyond their immediate benefits as a source of consumption income for Mexican households, remittances can facilitate development in Mexico as manifested in two primary ways. First, remittances are most frequently sent to states that have historically seen high rates of emigration and limited economic opportunity. While FDI flows are typically concentrated in Mexico’s more affluent and industrialized states, remittances help close the regional income and investment disparities that have persisted despite economic integration with the United States. Second, while the impact of remittances as a direct stimulator of economic growth has shown mixed results, there is clear evidence in Mexico that remittances are effective in reducing poverty and enabling households to meet their essential needs. As household incomes rise with the increasing value of remittances and families are increasingly able to spend beyond their most basic needs, the money sent in remittance transactions can be used to bolster savings and to invest in human capital and community projects, creating the potential for future economic growth and reduced reliance on remittances.
In Mexico, different types of financial flows align closely with regional disparities in economic development and financial inclusion. The majority of FDI is directed to Mexico City and states in the comparatively industrialized northern region of the country (most notably Nuevo León and Sonora), while states in the southern and southwestern regions of the country—where there is a larger informal economy and less integration with the USMCA bloc—receive comparatively little. Remittances are predominantly sent to states in the west-central and southern regions of the country, both areas most in need of additional income as well as historically the most likely to send migrants (both abroad and to other regions of the country) in search of economic opportunities. In 2023, the Mexican states that received the highest volume of remittances were Mexico State, Guerrero, and Michoacán, all in the west-central region.
The potential for remittances to play a significant role in mitigating regional disparities and catalyzing development lies in the countercyclical nature of the receiving country conditions vis-à-vis the sending country, as opposed to the procyclical nature of traditional capital flows and FDI. This means that remittances are most likely to be sent to Mexico by migrants during times of stagnating growth and economic volatility, such as during the Covid-19 pandemic, when Mexico experienced significant economic slowdowns and the Mexican peso depreciated vis-à-vis the U.S. dollar, making remittances sent in U.S. dollars all the more valuable to households in need of income. Remittance flows’ countercyclical nature thus ensures a steady flow of finances to the communities most vulnerable to the impacts of economic shocks, while also acting as an equalizer as remittances continue to flow while FDI flows to more economically secure regions are slowed.
Remittances are most likely to be sent to Mexico by migrants during times of stagnating growth and economic volatility, such as during the Covid-19 pandemic.
As in all other middle income countries except for China, remittances are the largest source of external financing in Mexico, with proven impacts including reducing the most extreme instances of poverty in the country. Yet, measuring the impact of remittances on poverty alleviation in Mexico still presents significant limitations. In 2020, Mexico’s National Survey of Household Income and Expenditure, which measures poverty alleviation in the country and is administered by Mexico’s National Institute of Statistics and Geography (INEGI), only captured $2.7 billion in annual “income from other countries” compared to the $43.9 billion registered for that year by the Bank of Mexico (see Figure 4). While efforts to assess the overlap between remittances and poverty alleviation have been made in the past, experts argue that the inclusion of remittances in future surveys could help Mexico better identify the effects of remittances on Mexico’s economy.
Another challenge is the underestimation of remittance income when comparing total remittances as a percentage Mexico’s GDP. In 2020, remittances comprised a mere 3.9 percent of Mexico’s GDP (see Figure 1). Yet, in states where poverty is most acute, such as Michoacán and Guerrero, remittances comprised 15.9 and 14.1 percent of their GDP, respectively. Reassessing the role of remittances in Mexico’s wider microeconomic ecosystem could lead to better policies, given that in the most extreme cases of poverty, the vast majority of remittance income goes toward the consumption of necessities such as food, clothing, and healthcare, as well as toward paying down debts.
Increasing accessibility to remittance services and decreasing costs to send them has amplified such funds’ effectiveness in combating poverty and freeing up additional income for longer-term developmental goals. Large wire transfer companies like Western Union and MoneyGram traditionally have dominated the remittance market; however, recently increased competition from lower-cost transfer services has reduced their market share with traditional banks and e-commerce companies developing alternative mechanisms for sending payments. In 2005, the U.S. Federal Reserve and Banxico launched Directo a México, a service that allows individuals to send payments directly between financial institutions in both countries. Remittances sent through traditional financial institutions are more likely to be long-term savings when compared to those that are immediately cashed out, and thus provide greater potential for investment in human capital and upskilling. Yet, a 2023 report by INEGI and the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF) estimated that only 55 percent of Mexican adults have traditional bank accounts, and only 25.1 percent of the adult population have some sort of savings in these accounts.
Decentralized and digital currencies, which have seen limited uptake in Mexico, present another alternative for senders to remit with reduced fees and more limited oversight from financial regulatory institutions. Cryptocurrency companies including Coinbase, Belfrics, Tether, and Mexico City–based Bitso have sought to capitalize on the remittance market by offering money transfer services that process quickly with relatively low fees. For example, in 2022, Coinbase launched a remittance pilot program in Mexico that allows recipients to save cryptocurrency in a Coinbase account or cash the currency out at 37,000 retail locations across the country. Bitso reportedly processed $8 billion in remittances in 2023, $4.3 billion of which was between the United States and Mexico. As of 2024, only about 2.5 percent of Mexicans report holding crypto assets, indicating that this is a space for potential growth. However, given the volatility of crypto assets’ value, it is unclear if significant numbers of remittance senders will consider crypto a viable alternative to more stable forms of currency exchange. Prioritizing access to remittances is of paramount importance given that they can fund education and human capital improvements, as well as entrepreneurship, long-term savings, and the establishment of small businesses.
Illicit Exploitation of Remittances
The decentralized structure of remittance networks offers a unique opportunity for criminal organizations seeking to launder proceeds from illegal activities, especially from drug trafficking. A core feature of remittances, and one that makes their convenience practical, is that they are decentralized and operate through a network of both large and small financial institutions and thousands of small vendors, oftentimes located in grocery stores, thus reducing the potential for transactions to be red flagged. Regulatory harmonization as well as rigorous and accurate oversight can protect this valuable financial ecosystem from exploitation by illicit groups.
The large number of remittances flowing from the United States to Mexico has provided some with an opportunity to send illicit funds to Mexico, though more data collection is necessary to estimate the extent to which this is a common practice. In 2023, Mexico, for the 10th year in a row, reached an all-time high in the volume of remittances it received; an estimated 95 percent of these remittances originated in the United States. Typically, states with large populations of Mexicans or people of Mexican descent, such as California and Texas, rank highest in remittance outflows. More recently, however, states with lower numbers of registered migrants registered a rapid increase in the volume of remittances, alarming security experts. One particular case garnered substantial attention early in 2023, when a report by the Mexican think tank Signos Vitales recorded a 585.3 percent increase in remittances emanating from Minnesota between 2020 and 2023. Some quickly pointed out that Minnesota is home to only 234,997 people of Mexican descent and an additional estimated 35,000 unauthorized migrants.
The case of Minnesota has served as an important telltale for an anemic data collection system that misses the granularity of remittance-flow dynamics. Further scrutiny into the Minnesota case uncovered that when a remittance service provider did not have the state of origin of remittances from the United States, remittance companies assigned the location of the data servers storing the data as the sender’s place of origin. Adjusting for this, Minnesota went from being the 3rd-largest sender of remittances—behind Texas and California—to the 17th largest. The same was observed in the municipality of Miguel Hidalgo in Mexico City, a likely location of the remittance receivers’ data servers or their business address. Nonetheless, the number of transactions with an “unknown” place of origin increased by 332.5 percent—an increase of approximately $927 million—from 2018–2022, emphasizing the need for due diligence by the operators who process remittances.
Further scrutiny into the Minnesota case uncovered that when a remittance service provider did not have the state of origin of remittances from the United States, remittance companies assigned the location of the data servers storing the data as the sender’s place of origin.
In addition to mislabeled data, several other factors have contributed to the large increase in remittances to Mexico. First, jobs lost during the pandemic were recovered faster by Hispanic and Black workers in the United States than by White Americans, which allowed immigrant families to send more funds home. The inadequate response by Mexico to address the economic effects of the pandemic, resulting in a more sluggish recovery, further bolstered these transactions. In addition, not only did immigrants and those of Hispanic descent experience quicker economic recovery because they were in the United States, they also enjoyed a significant rise in wages. Some experts argue that the higher employment and wages in the construction sector alone may account for as much as 64 percent of the growth in the value of remittances in recent decades. Finally, during the pandemic there was a sharp increase in the number of transit migrants—from places like Honduras, Guatemala, El Salvador, and Venezuela and heading to Mexico—who received remittances from family members living in the United States. For example, the state of Chiapas, with a negligible number of migrants in the United States, showed a rapid growth in its share of remittances originating in the United States, rising from 2 percent of Mexico’s total in 2018 to 5.4 percent in 2022. The number of irregular immigrants and asylum seekers in Mexico has been increasing since 2017, and the numbers spiked in 2021, reaching a record 130,863. According to estimates from Human Rights Watch, around 70 percent of refugee status claims are made in the city of Tapachula, within the state of Chiapas. Mexico’s immigration office reported a year-on-year increase of 161.67 percent in the number of irregular migrants between 2023–2024, with 240,780 of the migrants coming from Venezuela.
This is not to say that there have not been irregularities in the flow of remittances to Mexico. According to one report, from 2017–2022, the U.S. Department of Justice (DOJ) successfully prosecuted seven drug trafficking cases that involved the misuse of remittances. These cases typically involved conspiracy-level involvement by criminal actors owning a crucial element of the supply chain: remittance storefronts. The pattern identified in most cases was as follows: criminal actors and their recruits opened businesses that provided remittance services such as Sigue, Boss Revolution, and Ria; broke large sums of money into small transactions; and then wired the smaller amounts under fictitious names. While this method can capitalize on the ability to send up to $3,000, the average size for remittance transactions has stayed at around $390, indicating that it is uncommon for senders to get close to the upper limit.
To succeed via this method, criminal organizations must recruit a large number of vendors in the sending and receiving localities. While it would take approximately 2,564 deposits of the average $390 remittance to move a million dollars across the border, recent investigations into money laundering mechanisms suggest that millions are laundered without a single dollar ever crossing into Mexico using Chinese money launderers. This is only possible due to the vast network of Chinese money launderers and the demand for dollars by those seeking to bypass the $50,000 limit on capital outflow imposed by the People’s Republic of China.
While it would take approximately 2,564 deposits of the average $390 remittance to move a million dollars across the border, recent investigations into money laundering mechanisms suggest that millions are laundered without a single dollar ever crossing into Mexico using Chinese money launderers.
Chinese money launders use a method known as “Flying Money” (fēiqián) by which affluent Chinese nationals deposit money domestically into a company producing the chemical precursors of fentanyl. According to a recent Reuters investigation, these precursors are then shipped to Mexico, using only a mailbox, an internet connection, and digital currency to pay, and delivered to transnational criminal organizations that synthesize fentanyl and then transport it to be sold in the United States. TCO agents who distribute the fentanyl in the United States and have liquid profits from the illicit sales then deliver large amounts of cash into the hands of Chinese nationals living across the country, which allows the latter to buy property and luxury goods, among other things. A senior Drug Enforcement Agency official went so far as to say that “[t]oday a majority of DEA investigations involving illicit finance involve Chinese [money laundering organizations].”
Recent Actions and Changes
Domestic reforms spearheaded by the Morena Party have contributed to the decline of Mexico’s peso, in turn driving up remittance valuations. In February 2024, Mexico’s president, Andrés Manuel López Obrador (AMLO), introduced a package of reforms he dubbed Plan C, which comprised constitutional reforms remaking political institutions, disappearing independent regulatory bodies, and consolidating the country’s judiciary, including subjecting every judge in the country to popular election. As a result, the value of the Mexican peso plummeted from a high of 16 pesos in April 2024 to 20.5 pesos per U.S. dollar by late November 2024, a low not seen since December 2022. The judicial reform passed in the final weeks of AMLO’s presidency, and the peso has continued its slide during Claudia Sheinbaum’s presidency. As of late 2024, the same amount of U.S. dollars can buy more pesos than was possible even one year ago, which has led to an increase in remittances to Mexico.
It is unclear whether this trend will continue into 2025. On the one hand, comments from U.S. Federal Reserve chair Jerome Powell indicate that the United States is expected to continue lowering interest rates, which tends to lead to a depreciation of the U.S. dollar. However, potentially inflationary policies such as tariffs and additional spending by the incoming U.S. administration could lead the Federal Reserve to halt its efforts to lower interest rates.
Perhaps the biggest effects will come after the 2025 start of the Trump administration, given former president Trump’s desire to undertake a mass deportation campaign, which would significantly affect the number of remittances sent to Mexico. Relatedly, any policy changes related to asylum, the right to remain, birthright citizenship, humanitarian parole programs, or deportations will likely impact the volume of remittances sent to receiving communities. The same is the case for any increased authorities given to Immigration and Customs Enforcement or a return to building the southern border wall.
An additional layer of complexity is the proposal by Representative Kevin Hern (R-OK) and then-senator, now vice president-elect JD Vance to impose a 10 percent fee on remittances sent abroad. This initiative, entitled the Withholding Illegal Revenue Entering Drug Markets (WIRED) Act, could be used as a guide for executive action during the incoming Trump administration. Currently, Oklahoma is the only U.S. state that places an additional tax on remittances—the state imposes a fee of $5 on any wire transfers under $500 and 1 percent on any amount in excess of $500. The states of Georgia and Iowa have proposed legislation to tax wire transfers in recent years. De jure, both of these pieces of legislation could create a double-taxation scenario that could be legally questionable in the context of the United States-Mexico Income Tax Convention.
In 2026, all three North American countries must review the USMCA, a process that the incoming Trump administration may use to strengthen the U.S. position vis- à-vis Mexico not only on trade, but also on remittance controls. Currently, Chapter 19 of the USMCA relates specifically to digital trade. Although the chapter makes no mention of remittances, the increasingly digital nature of such transfers means that harmonization of regulations surrounding digital money transfers sent as remittances could become an important point to revisit in the 2026 review. Security concerns may be brought into these conversations, especially as they pertain to the ability of criminal organizations to exploit the remittance process.
Furthermore, unlike regional blocs such as the European Union, the USMCA does not include a comprehensive framework to regulate labor mobility between North American countries, as such an agreement would veer into the realm of domestic immigration policy. As segments of Mexico’s economy continue to rely on remittances from abroad and demographic changes in the United States and Canada necessitate some immigration to meet labor shortages, it is possible that conversations around labor mobility will occur during the USMCA review process.
Policy Recommendations
Remittances provide essential income to Mexican households and hold the potential to diminish regional disparities and drive economic development if directed toward savings and investment. While this way of moving money across borders is mostly used by migrant families, the risk of exploitation by criminal groups can be curbed by deepening policy coordination between Mexico and the United States. The following recommendations are meant to be initial steps to strengthen the security and economic potential of remittances.
- Lower the U.S. threshold for maintaining records of financial transactions
Current U.S. law mandates reporting for transactions above $3,000, while Mexico sets its threshold at $1,000. Lowering the U.S. threshold to align more closely with Mexico could disincentivize the use of remittances for illicit purposes and increase the ability of financial institutions and law enforcement entities in both countries to flag suspicious transactions sent just below the threshold level. While one could argue that this places a burden on the private sector to report a higher volume of remittances, studies indicate that, despite the increase in the total value of remittances in recent years, the average size of a remittance remained in the low-to-mid three hundreds, with its highest point being $390. Furthermore, with many remittance providers already requiring identification documents, like a driver’s license, codifying this would be a step toward transparency and would set the basis for cooperation between Mexico and U.S. federal entities pursuing investigations into illicit flows. More thorough training of staff operating remittance branches in the United States to identify false identification documents is also an important step to be able to track trends in persistent remittances over $1,000. Such training would further increase transaction transparency and create barriers to money laundering by illicit groups whose modus operandi requires them to break down large sums of money into smaller transactions by numerous different identities.
- More thoroughly investigate suspicious clusters of remittance flows and develop stricter regulations regarding transaction transparency and attribution of remittance origins and destinations
There is currently no consensus on whether outlier clusters of remittance flows in the United States and Mexico are due to nefarious activities or other factors, such as errors in data entry, attribution to server locations instead of transaction locations, or limited access to remittance service providers in certain areas of Mexico, among others. To address this issue and its potential for illicit use, remittance providers could place stricter restrictions on processing transactions that do not have a location of origin in order to avoid misrepresentation of illicit activity. From 2018–2022, the number of remittances transactions that did not have an identifiable location of origin increased by 332.5 percent, equivalent to $927.1 million. Requiring clear and identifiable information about the origin of remittances, as well as who is sending them, would help security experts identify outlier clusters while also facilitating collaboration between financial institutions to improve the accuracy of remittance tracking and attribution systems. Furthermore, adjusting reporting mechanisms could also provide a more realistic picture on remittance distributions, which could decrease the number of false flag alerts in U.S. and Mexican security systems. Additionally, both Mexican and U.S. financial intelligence units should work together to harmonize regulations regarding identity and location attribution for international transactions.
- Place stricter background checks on remittance endpoint providers in the United States
A common throughline in cases where the misuse of remittances was observed is the opening of multiple remittance endpoint subsidiaries. In several of the DOJ indictments, the individuals indicted systematically opened several branches of remittance providers to be able to process the high volume of remittances necessary to launder money. While handling such volume single handedly would be a daunting task, collectively, these networks facilitated the movement of illicit money without raising any alarms. Tighter background checks on potential branch owners and the creation of something akin to a rating system dependent on the number of transactions they make without a location of origin could be a first step in counteracting this use. This recommendation primarily focuses on the United States, given the flow of remittances (from the United States to Mexico) and the irregularity of these endpoint subsidiaries. In Mexico, remittances are typically cashed out at local banks or department stores, where the legitimacy of the provider is considered less at risk of exploitation.
- Maximize the use of AI to identify suspicious transaction clusters and irregular transactions patterns
The rise in artificial intelligence (AI) means that models can be trained on natural patterns of behavior to identify irregular transactions with a relatively low level of human effort. AI can help banks and other financial institutions reduce compliance costs by lowering the number of false alerts, that is, those that do not signal actual money laundering activity. AI has the capacity to account for data centers and more efficiently review transactions that are incorrectly flagged by anti-money laundering mechanisms, which is especially important as gaps in data of origin become more widespread. Even on a basic level, generative AI can create models that assess the effectiveness of monitoring systems, thus helping service providers create more robust security networks.
- Incentivize social and community investment via remittances matching
Beyond securing remittance flows to the most vulnerable, it is equally important to ensure that this economic empowerment has a lasting effect. Because remittances are typically used for essential goods, families often have little room to withhold some of the money for future investment and savings. At the micro level, remittances can be directed toward long-term investments in human capital, education, and businesses, leading to economic growth in local communities. At the macro level, however, the Mexican government and international financial institutions, such as the World Bank, can develop remittance-matching programs or community-based microfinance initiatives that channel funds toward investments in infrastructure, the expansion of local industries, and investment programs in something akin to public bonds. Efforts to engage the Mexican diaspora could also be expanded, encouraging investments in social and community needs in Mexico. Programs like CONACYT’s Red de Talentos Mexicanos already foster connections with the diaspora to promote knowledge and skill sharing, and these types of initiatives could be strengthened to incorporate community-based investments that drive economic development.
- Invest in financial literacy programs to promote investment and entrepreneurship
Remittance recipients often lack the financial capabilities needed to save and invest for long-term returns such as retirement accounts. In Mexico, a 2010 survey showed that the majority of remittance recipients saved for the short term, and not in formal financial institutions. The Mexican government, in collaboration with multilateral organizations and the private sector, could work to strengthen financial inclusion within the country, where nearly half of the population lacks access to formal financial services. The Mexican government can also work in tandem with international financial institutions, USAID, NGOs, and businesses to provide investment workshops that strengthen the entrepreneurial skills of small business owners. The power of remittances to invigorate Mexico’s economy is catalytic, but the Mexican government must work in tandem with the millions abroad to create the conditions that enable these remittances to generate long-term economic growth.
- Direct capital flows to the more neglected regions of Mexico to close economic disparities and reduce communities’ reliance on remittances for basic needs
The United States and Mexico should collaborate to attract formal investment into the marginalized regions of Mexico that have historically been less integrated into the North American trade bloc. Redirecting investment to the south of Mexico, for example, has the potential to reduce the levels of inequality experienced in states like Chiapas and Guerrero and could even reduce both the level of migration experienced by this subregion and its overall reliance on remittances.
The Isthmus of Tehuantepec Interoceanic Corridor Project, which seeks to connect the main ports of Oaxaca and Veracruz and facilitate trade to Europe, Asia, and the United States, is a first step in setting up the infrastructure necessary to increase Mexico’s nearshoring attractiveness. Another area of growth needed to increase foreign direct investment in the south of Mexico involves developing the renewable energy infrastructure necessary to sustain manufacturing and assembly, which is vital for the development of industry in the south. By channeling foreign direct investment and expanding infrastructure in these underdeveloped areas, both countries can stimulate local economic activity and mitigate migration flows driven by poverty and lack of opportunity, while also promoting long-term economic growth and integration into global markets.
Ryan C. Berg is director of the Americas Program and head of the Future of Venezuela Initiative at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Rubi Bledsoe is a research associate with the Americas Program at CSIS. Michael Ferguson is a former intern with the Americas Program at CSIS.
This brief is made possible by the generous support of Grupo Bancoppel.