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

Hale Utar ()

Documentos de Trabajo LACEA from The Latin American and Caribbean Economic Association - LACEA

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.

Keywords: Drug War; Mexico; Firms; Violence; Organized Crime; Manufacturing; Labor; Technology; Productivity; Reallocation; Trade; Gender (search for similar items in EconPapers)
JEL-codes: F14 L25 L60 O12 O14 O18 O54 R11 (search for similar items in EconPapers)
Pages: 103
Date: 2020-02-27
New Economics Papers: this item is included in nep-dev
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Working Paper: Firms and Labor in Times of Violence: Evidence from the Mexican Drug War (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:col:000518:017937

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