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Globalization and the Price Decline of Illicit Drugs

31 Pages Posted: 22 May 2007  

Claudia Costa Storti

Banco de Portugal

Paul De Grauwe

London School of Economics & Political Science (LSE); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)

Date Written: May 2007

Abstract

Retail prices of major drugs like cocaine and heroin have declined dramatically during the last two decades. This price decline has tended to offset the effects of drug policies aimed at reducing drug use in major industrial countries. The main finding of this paper is that the decline in the retail prices of drugs is related to the strong decline in the intermediation margin (the difference between the retail and producer prices) in the drug business. We develop the hypothesis, and give some evidence, that globalization has been an important factor behind the decline of the intermediation margin. We conclude with some thoughts about the effects of globalization on the effectiveness of drug policies and argue that globalization may have increased the relative effectiveness of policies aiming at reducing the demand of drugs.

JEL Classification: F10, K42

Suggested Citation

Costa Storti, Claudia and De Grauwe, Paul, Globalization and the Price Decline of Illicit Drugs (May 2007). CESifo Working Paper Series No. 1990. Available at SSRN: https://ssrn.com/abstract=988036

Claudia Costa Storti

Banco de Portugal ( email )

Ave Almirante Reis 72
1150 Lisbon
Portugal
+351 21 313 0823 (Phone)
+351 21 352 3505 (Fax)

Paul De Grauwe (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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