The Violent Consequences of Trade-Induced Worker Displacement in Mexico

Abstract

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).

Economic Shocks and Crime: Evidence from the Brazilian Trade Liberalization

“…However, none of these papers attempt to identify the channels through which the trade-induced local shocks affect crime and none detect significant effects on violent crime (they study countries with relatively low crime levels-India and the United States-when compared to Brazil or most of Latin America and the Caribbean). 6 Finally, the paper contributes to the literature on the effects of labor market conditions on crime (Raphael and Winter-Ebmer 2001;Gould, Weinberg, and Mustard 2002;Lin 2008;Fougere, Kramarz, and Pouget 2009). In contrast to the Bartik shocks typically used as local labor demand shifters in this literature, we know precisely the source of the shock (changes in import tariffs), providing a more transparent source of exogenous variation.…”

A Survey of Papers Using Indonesian Firm-Level Data: Research Questions and Insights for Novel Policy-Relevant Research in Economics

“…Recent research demonstrates that trade-induced job loss increases violence. For example, Dell, Feigenberg, and Teshima (2019) showed that Mexican manufacturing job loss induced by competition with China increases cocaine trafficking. For Indonesia, Kis-Katos and Sparrow (2011) showed that increased exposure to trade liberalisation is associated with a decrease in child work.…”

Enforcement against Organized Crime Fosters Illegal Markets: Evidence from the Yakuza

“…Lastly, the seminal work by Becker (1968) predicts that the participation in illegal activities depends on the accessibility to legal economic opportunities. Dell et al (2019) find that a decline in manufacturing job opportunities caused by global trade with China increases drug-related violence.…”