Lorenzo R. Aldeco Leo
Job Market Paper Title:
Internal Migration and Drug Violence in Mexico
Job Market Paper:
We study the effects of drug-related violence on internal migration in Mexico between 1995 and 2015. High homicide rates after 2007 reduced net migration into violent municipalities. This effect is driven by lower inflows, consistent with a high homicide rate being a disamenity, and with large migration costs. The variation generated by cartel conflict over drug routes identifies causal estimates of violence on migration. To quantify the effect of high homicide rates on migration across Mexico’s system of cities, we estimate a spatial equilibrium model following Diamond (2016). We find that unskilled workers are the most affected, and are willing to accept wages 1% lower to decrease the homicide rate by 3%, and must receive wages at least 70% larger at destinations to be willing to move. Most welfare costs are driven by losses incurred by inframarginal individuals who stay in now-violent municipalities. The estimated welfare loss in partial equilibrium is equivalent to around 1.4 % of GDP per year in 2010. Large moving costs play a central role, as individuals have few chances to substitute away from a worsened local environment. General equilibrium effects decrease welfare further, as destination wages decrease with population inflows. We estimate an elasticity of local labor demand of .89, and find that general equilibrium effects had negligible welfare consequences in the presence of moving costs.
Urban Economics, Development Economics