Sunday 11 September 2011

Drug trade and economic development

Turns out that cocaine production is a net earner for Peru. In theory, it could go either way: the dangers associated with the illegal sector could scare off more activity in the legal sector than the cocaine trade is worth, or the displacement effect could be smaller than net revenue generation.

A new IMF paper says the cocaine trade generates more economic activity than it displaces. Shame it's not in the GDP statistics.

Using UNODC data, we have estimated that the production of illegal coca and cocaine represents the equivalent of 0.9 percent of total GDP in 2009. (See table 3 and figure 7 of the appendix for further details.) By comparison, similar calculations for Bolivia based on UDAPE (2010) data imply that coca leaf represents between 1/8 percent and 1 and 1/4 percent of total GDP, and UNODC sources suggest that illicit coca production represented the equivalent of 21 percent and 14 percent of agricultural output in 2008 and 2009, respectively for Bolivia, as compared to values ranging between 3.6% and 8.25% from 1990 to 2008. Similarly, Colombian DANE (2010) data imply that the share of production of coca and cocaine has ranged between ¾ and 3¾ percent of total GDP from 2000 to 2008, declining toward the end of the period as a result of the coca eradication efforts.
Read the whole paper if you want to learn more about the organization of cocaine production in Peru - a fun read despite extensive use of VARs and impulse-response functions towards the end.

More discussion here; HT: @NZDrug

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