Cuba's Unique Remittance Landscape: A Comparative Perspective

IntroductionIn the mid 1990s, Cuba implemented a growth-driven strategy to attract remittances from abroad, consisting of the legalization of the U.S. dollar, the expansion of a national network of state-run "dollar stores" (tiendas de recaudacion de divisas - TRDs), the development of government-operated exchange bureaus (Casas de Cambio, S.A. - CADECAS), and the transformation of the banking sector. These measures contributed to increases in the influx of remittances, and to the expansion of international tourism. Annual remittances increased from $537 million in 1995 to more than $900 million in 2005; tourist arrivals rose from 745,000 in 1995 to 2.0 million in 2005; and gross tourism revenues grew from $1.1 billion to $2.1 billion over the same period.Despite the impressive growth recorded during the 1995-2005 period, the amount of annual remittances sent to Cuba was significantly lower than the amounts sent to the Dominican Republic and El Salvador. According to the Inter-American Development Bank (IDB), Latin America and the Caribbean received an estimated $45 billion in remittances in 2004 (Terry 2005). While Cuba only received an estimated $855 million in remittances, or 2 percent of the total amount, the Dominican Republic received $2.2 billion, or 4.9 percent, and El Salvador $2.5 billion, or 5.5 percent.In the case of the Dominican Republic, remittances accounted for 6.6 percent of gross domestic product (GDP) in 1995, compared to 8.2 percent in 2005, and the ratio of remittances to merchandise exports over the same period increased from 21 percent to 39.3 percent. In El Salvador, remittances represented 12.1 percent of GDP in 1995; but rose to 16.7 percent in 2005; meanwhile, the ratio of remittances to merchandise exports increased from 74.1 percent to 83.5 percent.This study examines the unique nature of Cuba's remittance landscape and the magnitude of remittances in the Cuban economy, and compares them with the Dominican Republic and El Salvador.2 These countries were chosen because they share similar demographic characteristics3, their economies are roughly the same size4, and they share cultural values and expectations that strengthen and stimulate the flow of remittances. In the first section, we review the general factors that motivate remittance behavior. Next, we describe and compare the principal characteristics of the remittances landscape in Cuba, the Dominican Republic and El Salvador. And, finally, in the third section, we analyze and compare the magnitude of remittances in the Cuban, Dominican, and Salvadoran economies during the 1995-2005 period.Factors That Influence Remittance Behavior5Family remittances are defined as the portion of earnings (or income) sent by persons working (and residing) abroad for a period greater than one year to friends and relatives in their countries of origin (Garcia and de Palacios 2005). These unrequited unilateral transfers typically exclude debt payments and investments to purchase real or financial assets, which are usually classified as deposits or investments rather than family remittances (Garcia and de Palacios 2005). Periodic payments sent by temporary guest workers are also excluded from the standard definition of remittances, since they represent an indirect form of employee compensation (Garcia & de Palacios, 2005). The traditional definition of family remittances also excludes any personal belongings, including cash and transferable financial assets, that persons working and residing abroad may bring upon their return to their countries of origin, since such assets (in both tangible and intangible form) are usually classified as "migrant transfers"(Garcia and de Palacios 2005).Given these definitions, it is clear that migration is a necessary condition for the existence of remittances. The literature on remittances identifies two economic factors that contribute to migration. On the demand side, there are the so-called "pull factors" such as the demand for labor and intricate social networks that facilitate the migrant's integration in host countries. …