Fernandez, Manuel

Studies on illicit economies frequently emphasize violent threats to society. This study contends that illicit economies can also generate economic and social opportunities, thereby competing with the state but generate relevant environmental impacts. This research examines the socio environmental and economic impacts of a recent coca cultivation boom in Colombia, employing a difference-in-differences methodology alongside satellite-derived nighttime light data as a proxy for economic activity. The findings suggest that the coca boom extends beyond increased cultivation, reshaping territorial dynamics and acting as a catalyst for both economic and landscape transformations. A one standard deviation increase in coca cultivation is associated with a 2.5% to 3.1% rise in municipality-level GDP, and each additional dollar generated from coca leaf sales corresponds to an increase in GDP ranging from 1.17 to 2.30. Notably, this boom did not significantly affect levels of violence; on the contrary, it appears to have enhanced educational outcomes for individuals under 19 and increased labor force participation for those over the age of 20. Yet, despite these benefits, the boom had no significant effect on fiscal revenues or agricultural land use, and it increased deforestation by 104% and raised land conversion from coca to cattle pastures in the Amazon region by 302%. These findings underscore the complex and often contradictory role of illicit economies in providing short-term economic gains and social opportunities while imposing long-term environmental damage on local and global commons.