Remittances have become an important source of financial flows to developing regions and have been resilient in the face of economic downturns. These funds can be used for various purposes, including basic consumption, housing, education, and small business formation; they can also promote financial development in cash-based economies. Because of the importance of these flows to many developing countries, in recent years, countries that send remittances and receive remittances, along with international organizations, have expressed increasing interest in understanding immigrants’ remittance practices. According to the 2000 Census, the 1990s saw the largest increase in the foreign-born population that entered the United States, compared with any other 10-year period. IMF figures show that in 2004, immigrants in the United States sent over $29.9 billion in remittances, more than any other country. Saudi Arabia was the second largest remittance-sending country; however, as shown in figure 1, the volume of remittances from Saudi Arabia has been falling since 1994, while that from the United States has been steadily increasing. For some countries, remittances constitute the single largest source of foreign currency and can often rival direct foreign investment in amounts. World Bank data show that for selected countries remittances exceed the flows of official development assistance and foreign direct investment and are relatively large compared to exports and gross national income— particularly for the Dominican Republic and the Philippines (see table 1). Remittances are also very important for those households that receive them. Table 2 shows the minimum wage per month for several developing countries as well as our computation of the 2003 per capita remittances from the United States per month. As can be seen from this table, remittances received by households on a monthly basis tend to substantially exceed the monthly minimum wage for these countries. For example, per capita, remittances to households in the Philippines are almost five times the monthly minimum wage a Filipino worker would make in the retail and service sector. The IMF collects and publishes official estimates of remittances sent from its member countries, including the United States, as part of its balance of payments statistics. The IMF currently reports the sums of “workers’ remittances” and “compensation of employees” as the best measure of total personal remittances. According to IMF, “workers’ remittances” are transfers by migrants who are employed in countries other than their birth countries and are considered residents there; “compensation of employees” is made up of wages, salaries, and other benefits earned by individuals in economies other than those in which they are residents, for work performed or paid for by residents of those economies. As a result, compensation of employees applies only to individuals away from their place of origin for less than a year. In the United States, no U.S. government agency tracks the flow of remittances through the payment system. Because of its role in compiling balance of payments statistics, BEA provides to the IMF official estimates of U.S. remittance inflows and outflows. BEA publishes remittance estimates in a different manner than reported in the IMF’s balance of payment statistics. BEA includes estimates of remittances by the foreign- born population residing in the United States to households abroad in the published item called “private remittances and other transfers.” This category is broader than the international definition of remittances, as it also includes payments or receipts of nongovernmental U.S. entities and foreign entities. Also, BEA publishes its estimates of “private remittances and other transfers” in its tables of international transactions accounts, defining it as the difference between transfers to and transfers from the United States. However, BEA provides to the IMF an estimate of remittances that flow from the United States to the world based on its underlying country-by-country tabulations. Until this year, BEA only provided this estimate to the IMF. For the first time, BEA published the estimate it provided to the IMF, as well as revised estimates back to 1991, in the July 2005 Survey of Current Business. The majority of remittances from the United States flow to Latin America, which includes Mexico, Central America, South America, and the Caribbean (see fig. 2). A large amount also flows to Asia, including the Philippines. There are many obstacles to accurately estimating remittances. First, many transactions may go through unregulated informal channels from which information cannot be garnered for inclusion in official estimates. While there are no official estimates, some experts believe that a large amount of remittances flow through this system, with market observers estimating that informal flows can range from 50 percent to 250 percent of recorded remittance flows. Second, countries do not always report remittance estimates or do not report them according to commonly held IMF definitions, which exclude transfers by the foreign born who have been in- country for less than one year. Variations in data compilation procedures occur partially due to different interpretations of definitions and classifications. In most cases, however, data weaknesses and omissions are due to difficulties in obtaining the necessary data. For example, the World Bank and other international organizations have indicated that developing countries with large remittance inflows often have a relatively weak capacity and limited resources, even though remittances are a large item in their balance of payments statistics. Countries with large remittance outflows often give lower priority to improvements in remittance statistics because they are a relatively small item in their balance of payments statistics, according to the World Bank and other international organizations. BEA uses a model to estimate remittances (which it calls “personal transfers”) from the United States. Although BEA’s methodology has some strengths, the accuracy of BEA’s estimate is uncertain for a number of reasons. BEA estimated that remittances from the United States in 2003 were $28.2 billion. To arrive at this estimate, BEA used a model that estimates remittances based on demographic information on the foreign born, such as their total number, income, and the percentage of income they remitted. In 2005, BEA revised its model for estimating remittances and incorporated more current Census Bureau data on the size and demographic characteristics of the foreign-born population of the United States; however, the model is limited particularly by lack of current data on the proportion of income immigrants were likely to remit and the assumptions BEA makes about its data. In addition, BEA uses the more current census data in a way that may double-count some immigrants. Prior to 2005, to derive its annual estimate of remittances sent from the United States, BEA developed a model comprised of three factors—the number of the foreign born, their family income, and the proportion of income remitted. The count of the foreign born, their income, and other demographic characteristics were obtained from information aggregated annually from U.S. Bureau of the Census surveys. These data were arrayed by length of residency in the United States and family types linked to marital status (e.g., married foreign head of households, native-born married to foreign-born spouse, and unmarried individuals). The remitter was assumed to be the household head. BEA extrapolated the foreign-born population derived from the 1990 Decennial Census using indicators, including the Census Bureau’s annual Current Population Survey (CPS). To estimate the proportion of income immigrants were likely to remit, BEA relied on the 1989 Legalized Population Survey (LPS1) and the 1992 Legalized Population Follow-Up Survey (LPS2), which were conducted as a result of the Immigration Reform and Control Act of 1986 (IRCA). BEA then combined the information obtained from LPS1 and LPS2 with demographic and income information obtained from the CPS to arrive at the total amount of remittances sent from the United States. For a more detailed description of BEA’s methodology for estimating remittances, see appendix II. In 2005, BEA made several revisions to its methodology to include more recent census data, and recent studies on the foreign born and their remitting behaviors. First, BEA incorporated data on the foreign-born population and their income from the 2000 Census and the American Community Survey (ACS), which is available annually, unlike decennial census data, and thus requires less extrapolation of population and income trends. According to BEA, these data will enable a better breakdown of the foreign-born population by all relevant characteristics on an annual basis. The ACS data on the number and income of the adult foreign-born population are arrayed by their gender, duration of stay, presence or absence of children, and per capita income of recipient countries and proximity to the United States. BEA then used its own judgment to determine the percentage of the adult foreign-born population that remits and the probability of remitting from information gathered from various academic studies published between 1995 and 2004, as well as LPS1 and LPS2, which BEA used in its earlier model. BEA revised its estimates back to 1991 using this new approach, which resulted in an increase in estimated remittances for all years. Figure 3 shows the data that are included in BEA’s model and how the remittance estimate is calculated. In most cases, BEA provides only a global estimate of remittances and does not publish remittance statistics about remittances from the United States to individual countries. BEA stated that some data elements are not available for some time periods or geographic areas, so it must undertake a variety of methods to fill the data gaps in order to produce the underlying tabulations needed for an aggregate estimate for the world. BEA cautions that disaggregating its estimate for the world is error-prone and expresses confidence only in its aggregate estimate. Further, according to BEA, in moving from the global estimate to increasingly smaller geographic areas or countries, the average errors in the underlying tabulations increase.