Drug cartels and deforestation: Investigating the impact of heroin demand shocks on Mexico's forests

This presentation explores the impact of exogenous heroin demand shocks in the United States on illegal logging and deforestation in Mexico. Mexico, a megadiverse country with approximately 65 million hectares of forested area, has lost five million hectares of forest, and illegal logging is one of the key drivers of deforestation. The involvement of drug trafficking organizations in deforestation, coined as "Narco deforestation", is increasing in Central America and Mexico (McSweeney et al. 2014). The illegal logging activities in Jalisco and Michoacan states are controlled by cartels, and state authorities either stay passive or are not able to stop these illegal activities (Garcia-Jimenez and Vargas-Rodriguez 2021). The timber industry can be attractive for cartels as a means of diversifying their income and compensating for losses related to decreasing poppy cannabis prices. This study uses heroin demand shocks in the United States to detect changes in cartel behavior. The findings suggest that lower levels of deforestation are observed in deciduous forests, which are less valuable for timber production, following decreasing poppy prices. In contrast, opposite results are observed in coniferous forests, which are the main timber supply for round wood production in Mexico, when a municipality has cartel presence. In other areas, deforestation levels remain stable or decrease following poppy demand shocks. The results imply that cartels cope with income loss through illegal logging. The identification strategy is based on comparing poppy and cannabis-suitable municipalities, with the former impacted by U.S. heroin demand shocks and the latter not (Daniele et al. 2023). The presentation concludes that the U.S. heroin market significantly affects deforestation through Mexican cartels' adaptation strategies. The study highlights the importance of considering the indirect effects of drug demand on the deforestation.