Meltdown 101: Cash to Mexico and the US economy

EL PASO, Texas (AP) - The steady flow of dollars that immigrants send back to Mexico has taken a serious hit with the U.S. economy struggling through a recession.

Mexico's central bank tracks money sent to the country by Mexicans living abroad.

The bank announced last month that these "remittances" had dropped by more than 18% in the past year -- from $2.19 billion in April 2008 to $1.78 billion this April.

It was the biggest such decline on record.

Mexico isn't alone in the loss of remittance revenue, but the U.S. neighbor's economy relies heavily on the billions of dollars sent home annually.

Here are a few questions and answers about remittances and the U.S. economy, provided by The Associated Press.

QUESTION: Aren't millions of legal and illegal immigrants from Mexico still living and working in the U.S.?

ANSWER: Yes, many millions of Mexican immigrants live in the U.S. But immigrants have been disproportionately affected by the deepening recession because they often work in industries that are among the hardest hit.

David Besanko with Northwestern University's Kellogg School of Management says immigrant workers are disproportionately employed in construction and manufacturing.

AP reports data about illegal immigration from the U.S. Border Patrol suggests that fewer people are making the trek north to find work in the United States.

QUESTION: Have Mexican immigrants still working in the U.S. started to save more of their money - or spend it locally - rather than sending as much to relatives in Mexico?

ANSWER: Like nearly all Americans, immigrant workers who have been able to hold on to their jobs are likely making less money today.

Surveys by groups including the Pew Hispanic Center, a nonpartisan research group in Washington, show that the same number of Hispanics living in the U.S. continue to send money to Mexico and other Latin American countries, but the amount of money has dropped in direct correlation with their drop in income.

QUESTION: If immigrants are sending less money home, does that mean the U.S. economy may be in more trouble than initially thought?

ANSWER: No. Though immigrant workers have historically sent as much as $25 billion from the U.S. to Mexico annually, that money is still just a small fraction of the U.S. gross domestic product of nearly $14 trillion. (Gross domestic product, which measures the value of all goods and services produced in the United States, is the best gauge of the nation's economic health.)

And because that nearly $25 billion was not a direct part of the U.S. economy - it's sent out of the country, rather than spent on anything sold domestically - its absence should hardly be missed.

QUESTION: Can the drop in remittances to Mexico do damage to that country's economy?

ANSWER: With an economy about one-fourteenth the size of the U.S., the absence of remittances - Mexico's second-largest legal source of foreign income, behind revenue from the sale of oil - is likely to deeply affect the Mexican economy.

Besanko says the greatest impact is likely to be felt in rural communities, from which residents have historically migrated to the U.S. He says more urban areas have more stable, established local economies that can survive without the flow of foreign money.

QUESTION: Is Mexico the only country where remittances are down?

ANSWER: No. With the recession hitting nearly every corner of the globe, remittances to nearly every country are down. China and India lead the world in receiving remittances annually, with Mexico a close third.