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Immigrants, Legal Status, and Illegal Trade

McCully, Brett (2021): Immigrants, Legal Status, and Illegal Trade.

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Abstract

Nearly $2 trillion of illegally trafficked goods flow across international borders every year, generating violence and other social costs along the way. Some have controversially linked illegal trafficking to immigrants, especially immigrants without legal status. In this paper, I use novel data on nearly 10,000 confiscations of illegal drugs in Spain to study how immigrants and immigration policy affect the pattern and scale of illegal drug trafficking. To identify the causal effect of immigrants on trafficking, I construct an instrumental variable that interacts variation in total immigrant inflows into Spain across origin countries with the fraction of immigrants inflowing into each province. I find that immigrants increase both illegal drugs imported from and exported to their origin country, with irregular immigrants raising illegal drug imports. To better understand the role of legal status, I also exploit an extraordinary regularization of nearly half a million immigrants in 2005. Event study estimates suggest that granting immigrants legal status results in a decline in drug imports.

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