How can a small change in fiscal accountability boost violent disputes for valuable natural resources? In this paper, we investigate a regulatory change in Brazil that greatly reduced governmental monitoring capacity against gold laundering and we show how this affected violence in illegal gold-mining sites. Because the new regulation introduced in 2013 made it harder for authorities to find illegal gold transactions between miners and first-buyers, demand for it increased and boosted competition for illegal mining sites, leading to more violence. To verify this, we devise a theoretical model and test its implications using a unique database combining gold deposits, Indigenous Territories, Natural Conservation Areas, environmental crimes, deforestation, and homicide rates. With a difference-in-differences design, we find that municipalities more exposed to illegal mining experienced extra 8 homicides per 100,000 people – or an increase of roughly 20% – after the regulation was passed. We also find that, as the model predicts, this large effect is likely coming from increasing illegal activity, which we measure with data on both deforestation and environmental crime reports.
Suggested citation: Pereira, Leila, and Rafael Pucci. A Tale of Gold and Blood: The Unintended Consequences of Market Regulation on Local Violence. Working Paper 005. Rio de Janeiro: Climate Policy Initiative, 2021.