Violence and economic development in Mexico: A panel data cointegration approach

Worldwide, it is widely recognized that violent conflicts constrain economic growth and development. Thus, it is necessary to research and analyse the main causes of violence and their relationship with development. This paper analyses how violence has affected economic development in the Mexican context during the 2000-2015 period. It takes into account that in the last decade, this country has had increased levels of violence, especially since the “war on drugs” against drug trafficking was promulgated in 2006. This study uses different econometric models that apply the assessments of the panel unit root and cointegration tests and panel cointegration estimation. The results indicate that the tests used to validate the data allow the panel data cointegration relationships to be calculated. They demonstrate the existence of a long-run relationship between violence and economic development. Specifically, the results take into account that gross domestic product per capita and public investments have inverse relationships with the homicide rate, whereas poverty, unemployment, illiteracy and the Gini index have direct relationships with the homicide rate. Moreover, violence is strongly related to the deterrence variables. The findings of this study demonstrate that drug trafficking explains the increased violence in Mexico. Thus, it is important to develop and formulate adequate policies to control this situation, take measures to control violence starting with its root causes and promote social and economic development with a strategy to strengthen legal activities in society.