Drug War Impacts on Regional Economies: Ciudad Juarez, Mexico and El Paso,Texas

Mexico is presently immersed in one of the most violent drug-related conflicts to date.  Since Mexican President Felipe Calderón declared war on the nation’s drug cartels in December of 2006, an estimated 28,000 have been killed as Mexican cartels struggle to dominate the lucrative and well-established illicit drug market in the neighboring United States.  While spillover into the U.S. has thus far been relatively limited, there is no sign of an end to the violence as 2010 is on track to be the deadliest conflict year yet, averaging over 900 deaths per month.  The escalating violence has led some U.S. officials and military analysts to speculate about what Mexico as a failed state would mean for U.S. national security.  While these speculations fall at the far end of worst case scenarios, it is not so implausible to consider the implementation of a quota on northbound border crossings, or even a temporary shutdown of all or some ports along the U.S.-Mexico border should an event of sufficient threat to U.S. security occur.  Short-term economic consequences of such a response from the U.S. are likely to be significant, particularly given the extreme interdependence characteristic of the U.S.-Mexico border region. 

This study analyzes the initial and future impacts of such a shock to the economy of one metropolitan area located along the U.S. side of the international boundary, the El Paso-Doña Ana County border region.  This region is located adjacent to Ciudad Juárez, Chihuahua, the epicenter of the Mexican drug war.  To evaluate the short and long-term net economic impacts of the implementation of various levels of restriction on northbound cross-border traffic flows, a series of simulations was generated using REMI, a dynamic integrated analysis tool which combines input-output, general equilibrium, econometric, and spatial modeling methodologies.  Direct impacts were estimated by downward adjusting regional retail sales and exports to correspond with lost incoming personal and freight border crossings resulting from the U.S. response to the drug war-related threat.  Using the REMI model, multiplier effects were then applied to estimate total initial impacts. 

Additionally, forecasts through 2025 were generated and compared to a baseline or status quo scenario in order to examine the border region’s resilience to such national security threats.  Consistent with similar studies examining the impacts of temporary shocks to the economy, for instance the effects of 9/11, it is expected that while the El Paso-Doña Ana County economy will initially be negatively impacted by a restriction on the flow of northbound border traffic flows, these effects should dissipate over time, converging with baseline forecasts.