The Economic Consequences of a Coca Production Boom in Colombia

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.