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Mexican manufacturing job loss induced by competition with China increases cocaine trafficking and violence, particularly in municipalities with transnational criminal organizations. When it becomes more lucrative to traffic drugs because changes in local labor markets lower the opportunity cost of criminal employment, criminal organizations plausibly fight to gain control. The evidence supports a Becker-style model in which the elasticity between legitimate and criminal employment is particularly high where criminal organizations lower illicit job search costs, where the drug trade implies higher pecuniary returns to violent crime, and where unemployment disproportionately affects low-skilled men. (JEL F16, J24, J64, K42, L60, O15, R23)The illicit drug trade is a multi-billion dollar industry that plausibly imposes high social costs. Notably, conflicts over drug trafficking during the past decade have transformed Mexico into an epicenter of global violence-in 2016, it ranked as the world's second most deadly conflict zone, with its number of violent deaths surpassed only by Syria (International Institute for Strategic Studies 2017). More generally, the world's highest rates of violence are concentrated in urban areas of developing countries involved in the cocaine trade (Igarapé Institute 2017). These striking facts raise the question of why participating in the drug trade is so attractive and fights to control drug routes are so violent. Anecdotal evidence suggests that limited economic opportunities and lackluster macroeconomic performance could play a central role. When asked how he got involved in the drug business, Joaquin "El Chapo'' Guzman-named the world's most powerful trafficker by the US government-responded: "in my [geographic] area … there are no job opportunities'' (Penn 2016).

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This study examines the effect of a tightening of the US air quality standard for lead in 2009 on the relocation of battery recycling to Mexico and on infant health in Mexico. In the United States, airborne lead dropped sharply near affected plants, most of which were battery-recycling plants. Exports of used batteries to Mexico rose markedly. In Mexico, production increased at battery-recycling plants relative to comparable industries, and birth outcomes deteriorated within two miles of those plants relative to areas slightly farther away. The case provides a salient example of a pollution-haven effect between a developed and a developing country. (JEL F18, I12, J13, O15, Q51, Q53, Q58)