Evaluating the economic impact of Mexico’s drug trafficking industry

By analyzing and gathering quantitative data, this paper presents the first formal economic analysis of the impacts of the drug trafficking industry in Mexico until 2006. The analysis measures the number of drug-traffic employees, the amount of cash and investments generated by the drug-trafficking industry, the monetary costs of violence and corruption, the estimated losses in foreign investment, and the costs generated by local drug abuse. While the authors acknowledge that in some small and less diversified rural communities, drug-traffic cash flows may be helping to alleviate a grinding stage of poverty and underdevelopment, they conclude that the illegal-drug industry generates economic losses of about 4.3 billion dollars annually. Such a high figure is certainly impeding Mexican economic growth and development. Several policy options are considered. 1 Paper presented at the Graduate Students Political Economy Workshop, Institute for Quantitative Social Sciences, Harvard University. Spring, 2008 (Cambridge, MA). The author is grateful for comments from Jorge I. Dominguez, Rafael Fernández de Castro, Steven Levistsky, and NDRI’s BST fellows. The authors also thank Diego Fulgueira and Jon Bishop for editing.