The Impact of the Mexican Drug War on Trade

Abstract:

This paper studies the unintended economic consequences of increases in violence following the Mexican Drug War. We study the effects on exports in municipalities with different levels of exposure to violence after the policy. A focus on exports allows us to control for demand shocks by comparing exports of the same product to the same country of destination. Building on the close elections identification strategy proposed by Dell (2015), we show that municipalities that are exogenously exposed to the Drug War experience a 40% decrease in export growth on the in- tensive margin. Large exporters suffer larger effects, along with exports of more complex, capital intensive, and skill intensive products. Finally, using firm level data, we provide evidence consistent with violence increasing marginal exporting costs.

Keywords: Exports, Violence, Mexico, Regression Discontinuity
JEL Classification: H56, D72, F16, N76
CID Research Fellow & Graduate Student Working Paper: 109
Last updated on 02/27/2020