Drug Trafficking Organizations and Local Economic Activity in Mexico.

Felipe González,Daqing Li

doi:10.1371/journal.pone.0137319

Abstract

Little is known about the relationship between illegal firms and local economic activity. In this paper I study changes in satellite night lights across Mexican municipalities after the arrival of large drug trafficking organizations in the period 2000–2010. After accounting for state trends and differences in political regimes, results indicate no significant change in night lights after the arrival of these illegal firms. Estimated coefficients are precise, robust, and similar across different drug trafficking organizations.

Highlights

Informal and illegal economic activities are spread across the world and represent a large share of economic activity
Satellite night lights as seen from outer space are incapable of distinguishing between legal and illegal economic production, we can use them to test whether the arrival of a Drug trafficking organizations (DTOs) at some municipality is correlated with an increase in total local economic activity
Where lmst is a night lights variable in municipality m, state s, and year t, ξm is a full set of municipalities fixed effects, zt is a full set of year fixed effects, DTOmst is an indicator variable that takes the value of one if a DTO is active in municipality m, state s, and year t, γst is a stateyear fixed effect, which removes variation in any differences in lights sensitivity across satellites and changes in worldwide economic conditions, and εmst is an error term clustered at the municipality level

Summary

Introduction

Informal and illegal economic activities are spread across the world and represent a large share of economic activity. In this paper I estimate the effect of drug trafficking organizations on local economic activity in Mexico. In the second part I exploit changes in the location of drug trafficking organizations across Mexico’s municipalities for each year between 2000 and 2010 to estimate their effect on local economic activity, measured as satellite night lights. Satellite night lights as seen from outer space are incapable of distinguishing between legal and illegal economic production, we can use them to test whether the arrival of a DTO at some municipality is correlated with an increase (or decrease) in total local economic activity. In addition to incorporating variation in both legal and illegal economic activity, satellite night lights provide higher frequency variation in economic production than standard census data, only available in Mexico every five years. As [10] states: “Lights growth gives a very useful proxy for GDP growth over the long term and tracks short-term fluctuations in growth”

Methods

Results

Conclusion