The (local) labor markets for terrorists and drug traffickers

 It's so hard to hire good help nowadays, but two papers in the latest Econometrica give us some insight into how that problem is solved in the labor markets for terrorists, and for narcotics.

First terrorism, which turns out to have a local financing element, suggesting frictions in moving money and terrorists...

TERRORISM FINANCING, RECRUITMENT, AND ATTACKS, by NICOLA LIMODIO, Econometrica, Vol. 90, No. 4 (July, 2022), 1711–1742

Abstract: This  paper  investigates  the  effect  of  terrorism  financing  and  recruitment  on  attacks. I exploit a Sharia-compliant institution in Pakistan, which induces unintended and quasi-experimental variation in the funding of terrorist groups through their religious affiliation. The results indicate that higher terrorism financing, in a given location and period, generate more attacks in the same location and period. Financing exhibits a complementarity in producing attacks with terrorist recruitment, measured through data from Jihadist-friendly online fora and machine learning. A higher supply of terror is responsible for the increase in attacks and is identified by studying groups with different affiliations operating in multiple cities. These findings are consistent with terrorist organizations facing financial frictions to their internal capital market.

"I study two aspects of the relationship between terrorism financing and attacks: (1) the correlation between the timing of financing and attacks; (2) the relation between financing and recruitment in generating attacks. To investigate the first point, I follow 1750 cities over 588 months between 1970 and 2018 containing the universe of terrorist attacks (e.g.,more than 14,000 events). I also build a panel with 29 terrorist groups operating in the same number of cities and the same period. To study the second point, I combine data from multiple online fora active in Pakistan disseminating Jihadist-friendly material with the work of two judges and a machine-learning algorithm, leveraging novel techniques from the computer science literature.

"The  natural  experiment  affects  a  specific  form  of  charitable  donation  and  terrorism financing through an Islamic institution: the Zakat. During Ramadan, Muslim individuals offer this Sharia-compliant contribution to philanthropic causes. While the amount is a personal choice, the Pakistani government collects a mandatory payment through a levy on bank deposits applied immediately before Ramadan.1When the tax hits fewer people due to its unique design, there is an increase in donations. This expansion in charitable donations boosts the probability that funds reach terrorist organizations due to multiple extremist groups having a legal charity branch.2 This unintended channel through which the design of the Zakat levy promotes terrorism financing has also been acknowledged by Pakistani government officials in the past.#"

# (cited newspaper article):"Information Minister Pervaiz Rashid has advised people to pay Zakat and charity to institutions which save lives and not to those producing suicide bombers."

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And then there's narcotics production and narco-terrorism, which to some extent runs in families.  The paper begins with this quote:

"The only way to survive, to buy food, was to grow poppy and marijuana, and from the age of 15, I began to grow, harvest, and sell.– Joaquin “El Chapo” Guzman, when asked how he became the leader of the Sinaloa drug cartel"

Making a Narco: Childhood Exposure to Illegal Labor Markets and Criminal Life Paths, by Maria Micaela Sviatschi, https://doi.org/10.3982/ECTA17082, ECONOMETRICA: JUL 2022, VOLUME 90, ISSUE 4, p. 1835-1878

Abstract: This paper provides evidence that exposure to illegal labor markets during childhood leads to the formation of industry‐specific human capital at an early age, putting children on a criminal life path. Using the timing of U.S. antidrug policies, I show that when the return to illegal activities increases in coca suitable areas in Peru, parents increase the use of child labor for coca farming, putting children on a criminal life path. Using administrative records, I show that affected children are about 30% more likely to be incarcerated for violent and drug‐related crimes as adults. No effect in criminality is found for individuals that grow up working in places where the coca produced goes primarily to the legal sector, suggesting that it is the accumulation of human capital specific to the illegal industry that fosters criminal careers. However, the rollout of a conditional cash transfer program that encourages schooling mitigates the effects of exposure to illegal industries, providing further evidence on the mechanisms.

"To establish these results, I take advantage of drug enforcement policies in Colombia that shifted coca leaf production to Peru, where 90% of coca production is used to produce cocaine. In particular, in 1999, Colombia, then the world’s largest cocaine producer, implemented Plan Colombia, a U.S.-supported military-based interdiction intervention.One of the main components was the aerial spraying of coca crops in Colombia. This intervention resulted in higher prices and expanded coca production in Peru, where production doubled in districts with the optimal agroecological conditions.2 By 2012, Peru had become the largest producer of cocaine in the world.3 

"This setting yields three useful sources of variation: (i) geographic variation in coca growing  in  Peru,  (ii)  over  time  variation  in  coca  prices  induced  by  Colombian  shocks, and (iii) variation in the age of exposure, exploiting the fact that in Peru children are more  likely  to  drop  out  from  school  in  the  transition  between  primary  and  secondary education at the ages 11–14. I thus define age-specific shocks by interacting coca suitability measures and prices. Differential exposure by age arises since children within a district or village experience the changes in coca prices at different ages and due to variation in coca suitability across districts, villages, and schools."