Immigrants, Legal Status, and Illegal Trade

Nearly $2 trillion of illegally trafficked goods flow across international borders every year, generating violence and other social costs along the way. Some have controversially linked illegal trafficking to immigrants, especially immigrants without legal status. In this paper, I use novel data on nearly 10,000 confiscations of illegal drugs in Spain to study how immigrants and immigration policy affect the pattern and scale of illegal drug trafficking. To identify the causal effect of immigrants on trafficking, I construct an instrumental variable that interacts variation in total immigrant inflows into Spain across origin countries with the fraction of immigrants inflowing into a province. I find that a 10% increase in the population of immigrants from a given origin country relative to the mean raises the likelihood of illegal importing drugs from that origin country by 0.8 percentage points. Moreover, immigrants without legal status drive illegal drug imports, while authorized immigrants drive exports. To better understand the role of legal status, I exploit an extraordinary regularization of nearly half a million immigrants in 2005. Event study estimates suggest that granting immigrants legal status results in a decline in drug imports.