Remittances, the repatriated earnings of emigrant workers, have grown to be an important source of foreign exchange earnings in many countries as immigrant workers transfer income to relatives at home. We propose to use a rich cross-sectional dataset to study remittances to Mexico from the United States and to explore how risk and uncertainty affect the volume of remittances sent by individual workers to their families. The proposed project will provide insights regarding the determinants and use of remittances by migrants and their families. In particular, we will: (1) develop a theoretical model that incorporates the notion that immigrants' income risk in the host country affects the level of remittances sent to the home country. (2) We will use our theoretical model to derive several testable hypotheses. In particular, we will assess whether remittances increase with income risk--as captured by variables such as the migrant's legal status in the United States, employment history, education, and work benefits. (3) We will further use our model and data to further understand why, when and how remittances are sent to the home community. Are remittances sent in response to income risk? In exploring the relationship between risk and remittances, we propose to consider two alternative manners of covering for uncertainty: (a) acquiring family-sponsored insurance through the support of family consumption and (b) accumulating assets as a form of precautionary saving. We will also assess whether variations in risk can serve as an alternative explanation for the decay in the remittance receipt over time. Finally, we will examine what mechanisms are used by migrants to remit and if their choice of transmission method is related to variations in risk, migrant characteristics, and the intended use of remittances in the receiving community. And, (4) we will seek to increase public awareness of the existence of an unexplored and rich cross-sectional dataset on border migration to the United States by Mexican migrants from 1993 to 2000 (i.e., Encuesta sobre Migracion en la Frontera Norte de M?xico). The analysis will provide insights into the behavior of immigrants and the manner by which immigrants hedge in the face of economic uncertainty. Immigrants, and in particular undocumented immigrants, are less likely to be eligible for social insurance programs relative to the native-born. Hence, it is of interest to understand how these individuals respond to uncertainty in terms of financing consumption on the part of their family or saving, both of which have implications for who is better able to weather economic downturns, how those fluctuations are best handled, and, therefore, for return migration.
