US Migrant Employment and Remittances to Central America: A Cointegration Approach

Abstract

Remittances accounted for 10 percent of GDP on average in Central America in 2010 and far outpaced other capital inflows. Because of their magnitude, these inflows are one of the most direct and immediate channels through which countries are vulnerable to business cycles in the developed world, and in particular to US business cycles, since the United States is by far the most important origin of remittances for Central America.¹ After a decade of strong growth, remittances underwent a widespread decline during the 2008–09 international financial crisis. However, there were important differences across countries, with more pronounced declines observed in Honduras, Guatemala, and El Salvador (10.8 percent, 9.3 percent, and 8.3 percent, respectively) when compared to the declines observed in Nicaragua (6.1 percent) and the Dominican Republic (4.5 percent).