The Economic Consequences of the Mexican Drug War

Military crackdowns often disrupt economic development by exacerbating violence. This paper examines the case of the Mexican Drug War, employing synthetic control methods. To prove causality, I use variation on statewide military operations, as well as the rollout of the war. Findings indicate a decrease in GDP per capita equal to 0.5%, in states with military operations. Determinants by which the Mexican Drug War hampered economic development include a proportional reduction in consumption per capita, and a decline in productive investment of at least 0.3%, driven by a drop of 3.2% in commercial credit granted to businesses.