The Development Impact of the Illegality of Drug Trade

36 Pages Posted: 20 Apr 2016

See all articles by Philip Keefer

Philip Keefer

Inter-American Development Bank

Norman Loayza

World Bank - Research Department

Rodrigo R. Soares

Columbia University - School of International & Public Affairs (SIPA); Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics; IZA Institute of Labor Economics

Date Written: March 1, 2008

Abstract

This paper reviews the unintended consequences of the war on drugs, particularly for developing countries, and weighs them against the evidence regarding the efficacy of prohibition to curb drug use and trade. It reviews the available evidence and presents new results that indicate that prohibition has limited effects on drug prevalence and prices, most likely indicating a combination of inelastic drug demand (due to its addictive properties) and elastic supply responses (due to black markets). This should turn the focus to the unintended consequences of drug prohibition. First, the large demand for drugs, particularly in developed countries, generates the possibility of massive profits to potential drug providers. This leads to the formation of organized crime groups, which use violence and corruption as their means of survival and expansion and which, in severe cases, challenge the state and seriously compromise public stability and safety. Second, prohibition and its derived illegal market impose greater costs on farmers than on drug traffickers. In many instances, this entails the transfer of wealth from poor peasants to rich (and ruthless) traders. Third, criminalization can exacerbate the net health effects of drug use. These consequences are so pernicious that they call for a fundamental review of drug policy around the world.

Keywords: Health Monitoring & Evaluation, Crime and Society, Economic Theory & Research, Post Conflict Reconstruction, Markets and Market Access

Suggested Citation

Keefer, Philip and Loayza, Norman and Soares, Rodrigo R., The Development Impact of the Illegality of Drug Trade (March 1, 2008). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1102838

Philip Keefer (Contact Author)

Inter-American Development Bank ( email )

1300 New York Ave., NW
Washington, DC 20577
United States
202-623-1961 (Phone)

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Rodrigo R. Soares

Columbia University - School of International & Public Affairs (SIPA) ( email )

420 West 118th Street
New York, NY 10027
United States

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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