Detecting Unobserved Drug Smuggling Using Export Data: Evidence from Peru

This paper develops a method through which to detect unobserved drug smuggling using transaction level export data. Exploiting a positive supply shock to the Peruvian cocaine market from coca eradication policy in Colombia, I study the impact of an exogenously induced increase in coca prices on the value of exports from Peru, as drug traffickers commonly use other goods to conceal cocaine shipments. Using variation in Colombian coca production to predict coca leaf prices, I estimate that a $1USD/KG increase in the farm gate price of coca leaves lead to a 248% increase in the value of exports from Peruvian provinces that are highly suitable to grow coca to countries identified by intelligence agencies as cocaine transit countries. Additionally, I find evidence that characterizes drug traffickers as sophisticated agents who reduce the risk of arrest or seizure through their selection of shipping methods. I discuss the importance of these results in the context of global drug policy and provide a scope for future work.