Agricultural Shocks and the Growth of the Mexican Drug Sector

New draft by Dube, Gracia-Ponce, and Thom: We examine how income shocks experienced by rural producers affect the drug trade in Mexico. Our analysis exploits exogenous movements in the Mexican maize price stemming from weather conditions in U.S. maize-growing regions, as well as export ‡flows from other major maize producers. We document that these price fl‡uctuations have substantial effects on the income of agricultural workers. Using data on over 2200 municipios spanning 1990-2010, we fi…nd that lower prices differentially increased the cultivation of both marijuana and opium poppies among municipios more climatically suited to growing maize. We also fi…nd impacts on drug seizures, along with killings perpetrated by drug cartels. Our fi…ndings demonstrate that maize price changes contributed to the burgeoning drug trade in Mexico, and point to the violent consequences of an expanding drug sector.