Three-Digit Increases or Measurement Errors?

As the Christmas season arrives, I’m reminded that many of us might send money to a family member or friend in Mexico.  Two years ago I sent $120 to Cocoyoc, Morelos to my grandmother during Christmas.  The dollar amount seems insignificant, but the act of sending those $120 is a microcosm of an annual billion-dollar flow from the U.S. to Mexico.

Remittances represent different things to different people.  The $120 is worth two weeks of my student stipend for food, and for someone earning an hourly wage, $120 makes up a large part of their monthly income.  For my family members, the money might have helped buy food or buy material to fix a leak in the house, pay for one of the grandchildren's school fees, or even pay for the paint for a sign at a small business in downtown Cocoyoc.

You’ll be surprised how my $120 went from a tiendita on Cherokee Street in St. Louis to Mexico’s bank account. Apparently, the money I sent was an electronic transaction at best, triggering a number code that I gave to my aunt so she could pick up the money at a convenience store in Cocoyoc.  The money transmitter I used in St. Louis reimbursed the convenience store in Mexico for paying my aunt and by law had to report the transaction to Mexico’s Central Bank, which maintains data from 250 money remitters.

However, questions about the reported increase in remittances and the way they are counted are currently being debated in academia and among different statisticians in central banks all over the world.  To what can we attribute the drastic increase in reported remittances to Mexico over the past few years?  Some argue many more Mexicans (i.e. Morelenses) migrated to the U.S. and sent money to their respective grandmas in Cocoyoc.  Others argue it’s the same number of people, but they are now sending more often, or higher amounts, than before. While all three are possible, there is one particular explanation I think is very relevant.

I think reason remittances seem to have increased so dramatically relates to the fact remittances have become a hot topic in classrooms and development organizations over the past few years.  In the spotlight, remittances are being counted more closely than before.  So, it is plausible money remittance’s upward trends are biased by how they are counted, rather than by other factors.  It is also possible the organizations doing the counting use different methods.

Several reasons justify counting remittances correctly.  For instance, closer scrutiny of remittances might protect customers from fraudulent companies or prohibitive fees.  Banks and money transmitter firms, basing their flows on more reliable numbers, might better develop financial services for Hispanic customers.  Lastly, US policies regulating money remittances, which affect those of us who send and those who receive them, would less likely be excessive or untargeted.  After all, all I want is to send $120 to my grandmother for Christmas.