Make Avocados, Not Drugs: Export Opportunities, Crime, and Rural Development in Mexico

Regions involved in the production and shipment of illicit drugs often exhibit high levels of violence, weak institutions, elevated risks of extortion for firms, and poor development. Despite this, the economic consequences of the drug trade remain unclear, particularly in legal sectors of the economy. To study the effects of drug production, we examine the context of Mexico, where rural farmers face the tradeoff between the production of legal crops and drugs (such as marijuana and opium poppy). Simultaneously, drug trafficking organizations (DTOs) choose to locate in areas best suited to facilitate the transport of drugs from areas of production to markets, and choose to extort legitimate firms where they operate. We study plausibly exogenous increases in the prices of alternative legal crops, particularly avocados, which led to reductions in municipality level drug production (as measured using remote-sensing methods), consistent with Dube et al. (2016). However, reducing drug production in some areas of Mexico may have lead to increased prices elsewhere, merely displacing DTO activity and its adverse consequences. To quantify these effects, we are developing a general equilibrium trade model in the spirit of Sotelo (2019) that allows for tradeoffs between legal crop and illegal drug production; this interaction can potentially impact other regions and sectors of the economy through spillover effects and by the reorganization of drug trafficking organizations. We plan on using this model to simulate the potential effects of alternative production opportunities or price subsidization schemes in Mexico. The results will inform future research and policy on whether those schemes are likely to be effective. For instance, if price subsidization schemes are only targeted at certain regions of Mexico, our model can help inform whether this may be counterproductive in general equilibrium, and simply drive DTO presence elsewhere.