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Violence and Opportunity in Mexico: Essays in Development Economics

  • Author(s): Montoya, Eduardo
  • Advisor(s): de Janvry, Alain
  • et al.
Abstract

This dissertation combines two empirical analyses related to the importance of security in Mexico. The first paper considers the impact of a major collapse in security by studying firms in large cities during outbreaks of violence. The second paper turns to rural areas and small-scale farmers, examining the effects of a land titling program that was designed to improve tenure security and increase agricultural productivity.

Chapter 1 shows that indeed high levels of violent crime have substantial negative effects on firm outcomes. I study the economic consequences of recent high levels of violence associated with the Mexican drug war, relying on microdata from national business victimization surveys conducted in 2012 and 2014, and monthly panel data from 8,000 manufacturing and construction establishments in more than 70 cities between 2007 and 2013. Beginning primarily in 2008, violence spread across Mexico from city to city, creating spatial and temporal variation in cities' exposures to crime. I exploit this staggered incidence to identify the firm-level impacts of drug-related violence, first within a fixed effects design, and second within a novel difference-in-differences design employing structural breaks in homicide rates and synthetic controls at the firm-level. In all sectors, I find significant declines in activity when violence increases; in the industrial sector, I find that revenue, employment and hours worked fall by 2.5-4% in the 24 months following a large structural break. But I find no significant increase in wages, no significant impacts on private security investments, and I find that the business impacts of violence persist even after controlling for economic crimes like theft. Effects are heterogeneous by firm size and sector, and consistent with greater impacts among smaller firms and non-traded goods.

Chapter 2, which is based on joint work with Alain de Janvry and Elisabeth Sadoulet, shows that improving property rights through land certification leads to a particular pattern of migration and changes to the structure of local economies. We use the rollout of a large-scale land certification program in Mexico from 1993 to 2006 to study how rural reforms establishing secure property rights determine patterns of migration, urbanization, and structural transformation. Certification leads higher-skilled agricultural labor to migrate, leaving behind economies less concentrated in agriculture, yet with no significant deterioration in wages. States' manufacturing capitals see corresponding gains in urban population and agricultural employment. Average wages increase significantly in manufacturing capitals, suggesting growth and demand effects that outweigh employment competition usually associated with immigration. Sectoral wages only rise significantly in services, indicating that imperfect substitutability of labor is empirically important to understanding structural transformation and internal migration. These results also imply that natives in non-tradeable sectors are the most likely beneficiaries of increased local demand under immigration.

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