Drug crime is a serious problem worldwide. The use, but also the abuse of legal and illegal psychoactive substances, is an integral part of our societies. Correspondingly lucrative, but also damaging, is the business that is done with legal and illegal drugs. In this essay, I will address the effects of illicit drug trafficking on economic performance. Since a global view would go far beyond the scope of this work, I will limit myself to the American continent, especially on Mexico's drug trafficking with the USA. Furthermore, I will mainly focus on the cocaine trade, as this drug has the greatest economic, evidence-based effects for the individual countries studied.
First of all I will briefly explain the reasons why drug crime, but also drug prohibition in general, is an economic problem. In the second part of this essay, I will introduce the US demand market and the associated supply markets (Mexico and other Central and South American countries). In this context I will use the analysis of two papers (one written by Robles et al. and one written by Holst et al.) to explain to what extent the activities of drug cartels have an effect on economic growth in Mexico. Finally, I will counter-examine the findings of these two studies and formulate my own conclusion from the results obtained.
Table of Contents
1. Drug Prohibition and Drug Crime as a General Economic Problem
2. Demand Market USA & Supply Market Central- and South America
3. Economic Impacts of Drug Cartels in Mexico
3.1. Analysis of the Two Papers on Economic Growth in Mexico
Objectives and Topics
This academic paper examines the economic consequences of illicit drug trafficking, specifically focusing on the interactions between the US demand market and the Mexican supply market. The central research objective is to analyze how the operations of drug cartels and state-led prohibition strategies influence economic performance, growth, and infrastructure in the affected regions.
- Economic implications of drug prohibition and market supply dynamics
- Supply chain analysis between South/Central America and the United States
- Evaluation of cartel-induced violence on Mexico's regional economic growth
- Synthesis of econometric studies regarding synthetic control and GDP impacts
Excerpt from the Book
3.1. Analysis of the Two Papers on Economic Growth in Mexico
In order to conclude what concrete influence drug crime has on the economic growth of a country shaped by drug trafficking, I will hereinafter present two papers, which deal with the influence of DTOs on the economic performance of Mexico. I start with the paper by Holst et al.
In their paper, M. Holst and G. Bel examined to what extent Mexico's GDP growth was influenced by DTO-related violence and (military) measures against these cartels. For this purpose, the authors used a growth function in conjunction with the ß-convergence hypothesis. According to this hypothesis, poorer economies with a lower GDP per capita grow faster than richer economies (see Jones et al., 2013, p.63-65). Furthermore, they made use of the spatial spillover effect. According to this effect, domestic activities generate externalities which also affect the surrounding states (see Holst et al., 2016, p.3). This is important to take into account with regard to drug trafficking, since measures against drug trafficking in one area often lead to the drug problem merely shifting to a neighboring region or even to increasing rates of violence (see Rasmussen et al., 1993, p.229-230).
Summary of Chapters
1. Drug Prohibition and Drug Crime as a General Economic Problem: This chapter establishes the theoretical foundation, arguing that drug prohibition policies create high-profit margins for criminal organizations due to price-inelastic demand and scarcity bonuses.
2. Demand Market USA & Supply Market Central- and South America: This section provides an overview of the global drug supply chain, highlighting the scale of the US market and the pivotal role of Mexico and Andean countries in production and transit.
3. Economic Impacts of Drug Cartels in Mexico: This chapter details the rise of cartels, their influence on local economies, and the negative consequences of violence on businesses and tourism.
3.1. Analysis of the Two Papers on Economic Growth in Mexico: This subsection provides a critical review of econometric studies by Holst et al. and Robles et al., quantifying the impact of drug-related violence on GDP and electricity consumption.
Keywords
Drug Trafficking Organizations, DTO, Mexico, Economic Growth, Drug Prohibition, War on Drugs, GDP, Synthetic Control, Holst et al., Robles et al., Spatial Spillover, Homicide Rates, Electricity Consumption, Illicit Markets, Economic Impact.
Frequently Asked Questions
What is the primary focus of this paper?
The paper explores the economic effects of illicit drug trafficking, specifically analyzing how the activities of drug cartels and government prohibition policies impact economic performance in Mexico.
What are the central thematic fields covered?
The study covers drug supply and demand economics, the "War on Drugs" policy, the relationship between organized crime and regional GDP, and the impact of violence on private enterprise.
What is the central research question?
The work aims to explain to what extent the activities of drug cartels and the resulting violence have a measurable negative effect on the economic growth and development of Mexico.
Which scientific methods are employed?
The author uses a literature-based comparative analysis, synthesizing results from econometric models such as the ß-convergence hypothesis, spatial spillover analysis, and the synthetic control methodology.
What is addressed in the main body of the text?
The main body examines the economic theory behind drug prohibition, provides a geographical overview of the drug trade, and performs a detailed analysis of two specific studies investigating the economic consequences of cartels in Mexico.
Which keywords characterize this work?
Key terms include Drug Trafficking Organizations (DTO), Mexico, Economic Growth, Drug Prohibition, Synthetic Control, and spatial spillovers.
How does drug prohibition affect drug prices and cartel profits?
The paper argues that prohibition limits supply against price-inelastic demand, which leads to significantly higher prices for illicit drugs, thereby creating massive profit margins that fuel the growth and violence of drug cartels.
What conclusions are drawn regarding the "War on Drugs"?
The author concludes that the current repressive "War on Drugs" is ineffective, expensive, and escalates violence, suggesting that a shift toward more liberal or decriminalizing strategies might be more economically and socially effective.
- Citation du texte
- Johannes Grunwald (Auteur), 2020, The Effects of Illicit Drug Trafficking on Economic Growth in America, Munich, GRIN Verlag, https://www.grin.com/document/981094
