Throwing gasoline on the cocaine production: the effect of a supply shock on violence

Throwing gasoline on the cocaine production: the effect of a supply shock on violence

Seminar organised by the Navarra Center for International Development of the Institute for Culture and Society.

Does drug production lead to violence? In this paper, I exploit an exogenous supply shock in smuggled gasoline, an input factor needed to produce cocaine, and analyze the effect on violence in Colombia in coca-producing areas compared to non-producing areas using a synthetic difference-in-differences strategy. The shock led to an increase in coca leaf cultivation and an increase of 9.72 homicides per 100,000 inhabitants, implying that the supply shock's effect is equivalent to a 21% increase in the homicide rate. The main results are robust to various tests, such as controlling for immigration, distance from the border, and excluding big cities. Hence, when it becomes cheaper to produce cocaine, production areas have more violence. By looking at a purely economic effect on the drug market instead of a drug enforcement effect, I show that there is an effect of price changes on the cocaine market that goes beyond drug enforcement and that even more minor price shocks that do not disrupt the whole system have an impact. The paper also contributes to the literature by studying the interaction between two illegal markets: the smuggling of gasoline and cocaine production.

Speaker: Monica Edder (Norwegian School of Economics and affiliated to FAIR and Chr. Michelsen Institute).