The Two Pillars: Formal vs. Shadow Economy
Mexico's economy stands on two massive, competing pillars. The formal economy is deeply integrated with the U.S., while a shadow economy of illicit activities operates at a comparable scale. This chart compares the annual value of key U.S. inflows against the high-end estimate for the criminal economy.
The Criminal Economy's Value
14.1%
of Mexico's GDP, or ~4.5 Trillion Pesos, is the estimated value of illicit markets, rivaling the contribution of entire formal sectors.
The "Violence Tax"
18.0%
of Mexico's GDP, or ~5.7 Trillion Pesos, is the staggering economic cost of violence, vastly outweighing the criminal economy's monetary value.
The Illicit Labor Force
While cartels directly employ ~175,000 members, making them a top-tier national employer, this only reveals the core of the illicit labor force.
The Full Ecosystem
~1M+
When including farmers of illicit crops (e.g., opium and marijuana), money launderers, and other ancillary roles, the total number of people economically dependent on the criminal economy is estimated to be far larger.
Anatomy of Illicit Markets
The criminal economy is highly diversified. While drug trafficking is a core component, other illicit markets like fuel theft, extortion, and counterfeit goods generate tens of billions of dollars, preying on and corrupting multiple sectors of the formal economy.
- Fuel Theft (Huachicol): An industrial-scale drain on state resources causing billions in losses for PEMEX.
- Extortion (Cobro de Piso): A pervasive parallel tax system impacting businesses of all sizes, from street vendors to large corporations.
- Drug Trafficking: A foundational revenue stream, now strategically pivoted to highly profitable synthetic drugs like fentanyl.
- Other Markets: Includes human trafficking, illegal mining, and counterfeit goods, demonstrating vast operational reach.
Regional Lifelines: Remittance Dependency
While remittances average 3.7% of national GDP, this figure masks extreme vulnerability in certain states. In regions with long histories of migration, these U.S. inflows are not just a supplement but the foundational pillar of the local economy, exceeding 10% of the state's entire GDP.
System Shocks: Two Hypothetical Scenarios
The system's fragility is revealed when its core pillars are hypothetically removed. The outcomes are starkly different, exposing a "stability paradox" where elements of long-term instability provide short-term, dysfunctional support.
Scenario A: Eradicate Criminal Economy
Immediate Shock
Loss of 14.1% of GDP & 1M+ jobs.
Short-Term Crisis
Deep recession, mass unemployment, and social unrest in marginalized regions.
Long-Term "Peace Dividend"
Elimination of 18% GDP "violence tax," surge in investment, massive fiscal gains.
Scenario B: Collapse U.S. Remittances
Immediate Shock
Loss of $65 Billion (3.7% of GDP) in foreign currency.
Macro & Social Crisis
Peso devaluation, high inflation, and a catastrophic collapse in household consumption.
Longterm Dividends
Mexico will be forced to end corruption and reform, the US will enjoy a stronger domestic economy.