Assessing the effects of the Mexican drug war on economic growth: An empirical analysis

Abstract

Mexican President Felipe Calderón took office in December 2006. From the outset, his government deployed an aggressive security policy to fight drug trafficking organizations in what became known as the 'Mexican Drug War.' The policy earned considerable criticism since a heavy number of unintended casualties resulted from the frontal assault waged against the drug cartels. In this article, we evaluate the effects of the Mexican Drug War on Mexican states' economic growth. To do so, we study the effects of the rise in the homicide rate and changes in a state-level approximation of the military budget on economic growth. Using dynamic panel data econometrics, we find that while the growth in the number of homicides had negative and significant effects on state GDP growth, state military expenditures aimed at fighting drug trafficking had a positive and significant effect on the per capita economic growth rate.