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Firms and Labor in Times of Violence: Evidence from the Mexican Drug War

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  • Hale Utar

Abstract

I study how industrial development and employment in an emerging economy are affected by urban violence due to drug trafficking. Employing rich longitudinal plant-level data covering all of Mexico from 2005–2010 and exploiting plausibly exogenous spatiotemporal variation in homicide rates during the outbreak of drug-trade related violence in Mexico, commonly referred to as the Mexican Drug War, I show that a violent environment has a significant negative impact on manufacturing plants’ output, product scope, employment, and capacity utilization. The impact is very heterogeneous among plants. Studying within and cross-plant heterogeneity points to two underlying channels through which the Drug War affects firms: violence induced reduction in local demand and violence induced drop in labor supply participation. The output sensitivity of plants to a violent conflict increases in less diversified, locally selling and sourcing plants. The employment sensitivity increases with lower wages and a higher share of unskilled female workers. The results show both channels co-exist, and by reallocating resources from smaller, local, and female-intensive plants toward bigger and more diversified ones, the rise of drug violence has significant distortive effects on domestic industrial development in Mexico.

Suggested Citation

  • Hale Utar, 2020. "Firms and Labor in Times of Violence: Evidence from the Mexican Drug War," Documentos de Trabajo LACEA 017937, The Latin American and Caribbean Economic Association - LACEA.
  • Handle: RePEc:col:000518:017937
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    Cited by:

    1. Carolina Bernal & Mónica Ortiz & Mounu Prem & Juan F. Vargas, 2022. "Peaceful entry: Entrepreneurship dynamics during Colombia’s peace agreement," Documentos de Trabajo LACEA 019939, The Latin American and Caribbean Economic Association - LACEA.
    2. Jose Ramon Morales Arilla, 2019. "The Impact of the Mexican Drug War on Trade," CID Working Papers 109a, Center for International Development at Harvard University.
    3. Mascarúa Lara Miguel A., 2022. "Imperfect Law Enforcement, Informality, and Organized Crime," Working Papers 2022-16, Banco de México.
    4. Ummad Mazhar, 2021. "Women empowerment and insecurity: firm-level evidence," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 56(1), pages 43-53, January.

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    More about this item

    Keywords

    Drug War; Mexico; Firms; Violence; Organized Crime; Manufacturing; Labor; Technology; Productivity; Reallocation; Trade; Gender;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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