Seminario CEDE - Lucas Marín

The academic discourse on illicit economies has traditionally viewed them as impediments to social and economic progress. However, other strand of literature acknowledges that these activities can serve as crucial lifelines for vulnerable and marginalized communities, offering essential means of survival amidst adversity. Additionally, extractive economic booms, such as the cultivation of illicit crops, may boost various facets of socio-economic development. Our study aims to investigate the socio-economic role of illicit economies by analyzing the recent surge in coca cultivation in Colombia alongside the concurrent cessation of hostilities with Latin America’s oldest guerrilla faction. We employ a difference-in-differences identification strategy and night-time lights as a measure of economic activity. Our estimates reveal that a one standard deviation increase in coca crops between 2014 and 2019 raised municipality-level Gross Domestic Product (GDP) by 5.1%-6.3%. We delve into the effects of the coca boom on variables related to fiscal revenue, violence, and land use patterns. We find null effects on fiscal revenue and various indicators of violence, as well as on the production of legal crops. However, we estimate a 70% increase in deforestation rates and a substantial (58.5%) increase in areas converted from coca cultivation to pastures for cattle ranching in the Colombian Amazonian region. While our results emphasize the economic significance of this illicit economy in stimulating short-term economic activity and leaving certain forms of observable violence unaffected, they also provide evidence of the diminishing of certain aspects of natural capital, which might have effects on long-term development.