Informality, Illegality, and Criminality in Mexico's Border Communities

Abstract

Intellectual property rights groups and formal industry associations have long argued that the avoidance of taxes and regulations and the increase in the sale of counterfeit, contraband, pirated, and stolen goods in countries like Mexico contribute to a climate of illegality that incentivizes crime and benefits organized crime. Such informality could play a contributing factor to explain the rise and persistence of violence in Mexico. This concern is particularly relevant in border regions where organized crime controls illicit transnational flows and where many counterfeit and contraband goods cross national boundaries. This paper asks to what extent the informal sector facilitates illegality and criminality more broadly and explores three potential hypotheses: (1) organized crime might find a business opportunity in mitigating the opportunity costs to operating outside the formal economy; (2) intermediaries who manage the state's contradictory strategy of enforcement and tolerance might exploit their structural positions for private gains; and (3) criminals and organized crime might benefit from a climate of illegality. Through an exploration of the informal market for used cars illegally imported from the U.S. and the pirated and counterfeited goods business in Mexico's northern border communities, I find only limited support for the first hypothesis but considerable evidence for the second and third.