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Looking at the effects of the COVID-19 pandemic on workers' remittances flowing from the United States, this article focuses on the experiences of two countries, El Salvador and Mexico, which account for approximately 30 percent of all immigrants currently residing in the United States. Following the second quarter's economic lockdown, transfers to these countries experienced perplexing dynamics. Specifically, remittances to El Salvador witnessed a record 40 percent sudden drop, while Mexico recorded an unexpected 35 percent increase. We discuss some of the narratives proposed to explain this puzzling evidence and propose some alternative hypotheses.

Key findings:

  1. During the COVID-19 lockdown remittances to El Salvador registered a record fall. Conversely, Mexico witnessed a record increase in these transfers.
  2. The historical evidence does not appear to support the hypothesis that the sharp depreciation of the Mexican peso, in contrast with the fully dollarized Salvadoran economy, explains these results.
  3. The ongoing U.S. housing boom and the uncertainty regarding the refugee status of Salvadoran workers may help to explain some of this evidence.

Center Affiliation: Center for Quantitative Economic Research and the Americas Center

JEL classification: F40, F41, O10

Key words: Remittances, COVID-19

https://doi.org/10.29338/ph2020-12Off-site link

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