The impact of remittances from Canada's seasonal workers programme on Mexican farms

• Date: 01 June 2016
• Author: Thomas G. JOHNSON,Lidia CARVAJAL GUTIÉRREZ
• Published date: 01 June 2016
• DOI: http://doi.org/10.1111/j.1564-913X.2014.00022.x

International Labour Review, Vol. 155 (2016), No. 2

Copyright © The authors 2016

Journal compilation © International Labour Organization 2016

The impact of remittances from Canada’s

seasonal workers programme

on Mexican farms

Lidia CARVAJAL GUTIÉRREZ* and Thomas G. JOHNSON**

Abstract. Based on a survey of participants in Canada’s Seasonal Agricultural

Workers Program, the authors’ three-stage least squares estimation of a simultan-

eous equation model nds that migrants’ remittances enhance on-farm investments

in Mexico, which, in turn, increase farm income. Remittances are also found to have

a positive inuence on non-farm income in Mexico, by giving respondents the pos-

sibility of starting a new business and diversifying their investments. These results

support the hypothesis underlying the “new economics of labour migration” that

remittances contribute to economic development by relaxing the credit constraint

on the investment function of family farms.

A

number of researchers have studied the impact of remittances on eco-

nomic development and the income of migrant-sending households

and communities (de Brauw, Taylor and Rozelle, 2001; Zárate-Hoyos, 2004a;

Mora Rivera, 2005; Canales, 2006). Their research nds that those areas that

receive “collective remittances” are generally better off than those that do

not (Cohen and Rodriguez, 2005; Sørensen, Van Hear and Engberg-Pedersen,

2003; Zárate-Hoyos, 2004b; Unger, 2005).1

But how do the ways in which remittances are used affect economic de-

velopment in the receiving communities? To answer this question, some au-

thors have developed theoretical models to explain the effect of migration and

remittances on migrants’ country of origin. Rivera-Batiz (1986) developed a

model featuring a source country with increasing production of traded and

non-traded goods and found that remittances increased production even more.

Extending the Rivera-Batiz model, Djajić (1986) concluded that remittances

* Department of Economics, Universidad Autonoma del Estado de Mexico, email: lcarva

jal_2000 @yahoo.com. ** Department of Agricultural and Applied Economics, and Public

Affairs, University of Missouri – Columbia, email: johnsontg@missouri.edu.

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

1 Collective remittances are collected and transferred by migrant associations and commu-

nities, mainly in the United States.

International Labour Review298

increased the welfare of non-migrants only if the ow was above a certain

critical level. Similarly, Kirwan and Holden (1986) used a Heckscher-Ohlin

model and concluded that the welfare of non-migrants was dependent on the

amount of the remittances.

An important determinant of the impact of remittances is the degree to

which they are invested. Indeed, remittances are typically used by recipients

for daily expenses such as food, clothing and health care – basic subsistence

needs – that account for a signicant portion of their income. Only a small

percentage is saved and used for productive investments. Rempel and Lob-

dell (1978) point out that most remittances are received by parents and the

elderly and are used mainly for consumption, education of younger siblings

and housing. Glytsos (1993) found that approximately 62 per cent of Greek

migrants’ remittances were spent on consumption and 22 per cent on hous-

ing. In contrast, Adams (1991) found that remittance recipients in Egypt have

a higher propensity to invest. This result is supported by Mahmud and

Osmani (1980), who found evidence that remittance recipients in Bangladesh

have a higher propensity to save than do non-recipients. Oberai and Singh

(1980) found that households in India typically used remittances for product-

ive investments. Malik and Sarwar (1993) reached a similar conclusion.

Taylor (1992) found that remittances by Mexican migrant workers have

both indirect short-term effects and long-term asset accumulation effects on

the level and distribution of income among farm households. These ndings

also suggest that, where credit and insurance markets are missing or imperfect,

migrant remittances may promote the growth of non-remittance incomes by

enabling households to overcome liquidity and risk constraints. Remittances

have also been found to compensate for the lack of working capital in the case

of small-scale African farmers (Waters, 1973).

Against this background, the objective of this article is to assess the im-

pact of the remittances of Mexicans participating in Canada’s Seasonal Agri-

cultural Workers Program (SAWP), with a specic focus on the allocation of

remittances to farm investments and subsequent effects on farm and non-farm

income in rural Mexico. The study is based on a 2006 survey of 257 Mexican

SAWP participants in southern Ontario, of whom 137 worked in agriculture

in Mexico and allocated remittances to their farm activities at home. The con-

ceptual framework of our research is the “new economics of labour migration”

(Stark, 1991; Mora Rivera, 2005; Taylor, 1999), which posits that migration

decisions are taken among household members as a strategy to overcome

economic risks and liquidity constraints in production/investment decisions.

Accordingly, we estimate the impact of remittances specically in terms of

farm investment levels, and farm and non-farm income.2

The remainder of the article is organized into veparts. The rst pre-

sentsour theoretical model based on the “new economics of labour migra-

2 Note that non-farm income here includes only that earned in Mexico. Canadian income

is accounted for separately.