Following the Poppy Trail

Abstract

We study the historical origins and consequences of Mexican cartels. We first trace the location of current cartels to the location of Chinese migration at the beginning of the 20th century, and document that both events are strongly connected. We then use Chinese presence in 1930 as an instrument for cartel presence today. Our IV estimates indicate a positive link between cartel presence and better socioeconomic outcomes, such as lower marginalization rates, lower illiteracy rates, higher salaries, and better public services. We also report that municipalities with cartel presence have higher tax revenues and more political competition. Our paper provides an explanation to the fact that drug lords, the leaders of this particular form of organized crime, have great support in the local communities in which they operate.