New research on the impact of a variety of drug control policies finds that efforts to eradicate drug cultivation and compensate workers in source countries can boost trade and growth. The study by King Yoong Lim and Diego Morris, to be presented at the Royal Economic Society's annual conference at the University of Warwick in April 2019, also concludes that neither interdiction of drug shipments nor tougher policies on the associated gun trade are effective in reducing illicit drug trade.
Ever since US president Richard Nixon declared a war on drugs in 1971, different drug control policies have been implemented in both consumer and producer countries. These include policies ranging from crop eradication to an interdiction of drug shipments to outright legalisation of drug possession.
The results have been mixed, with the policy stance in several states and countries gradually shifting from prohibition to liberalisation. The illicit drug trade, as well as its associated illicit trades in firearms, remains highly persistent, with activities by drug-related syndicates based in the Central American and Caribbean regions continuing to be a subject of frequent press coverage in the United States.
Against this backdrop, the general difficulties of doing research on illicit drug trades mean that, beyond primary fieldwork-based research, there remains a vacuum in terms of the existing body of evidence on the macroeconomics of drugs, with studies of consumers and the drugs supply chain tending to be largely separate.
Specifically, to date, research has been missing a unified growth framework that includes the integration of formal international trade and illicit drug-for-gun trade, as well as different drugs control policies aimed at consumers, producers and intermediate trans-shipments. The new study aims to address this by developing a two-country, endogenous growth framework with international and illicit drug-for-gun trades.
Although this is mainly a theoretical contribution, the authors argue strongly for first putting together a unified framework that allows for trade-offs of different drug control policies. Without that, they say, dichotomous views in terms of what constitutes effective drug management policies will persist, and the subject of drugs-for-guns trade will remain one more suited for ‘Buddy-Cop’ or Spy movies than academic research.
The researchers' numerical policy analysis finds that:
- Prohibitive drug control policies (both at the consumer and supply ends) boost trade and growth in the formal sector of the economy, but there is a production–consumption growth trade-off that has not been previously documented. If maximisation of private consumption growth is the priority in the consuming country over output growth, there is a rationale for drug liberalisation. Indeed, the policy effect is nonlinear in that, the more open the consuming country, the wider the range of the initial conditions required for drug liberalisation policy to boost output growth.
- In the absence of any fundamental change to world drug demand and supply, policy experiments find that neither a more intensified intermediary-interdiction policy nor any non-quota gun control policy (such as a tax levied on production) is effective in reducing the illicit trades.
- A more direct supply-side policy aimed at eradicating drug cultivation appears to be more effective in raising formal trade and growth. The effectiveness of the policy, as well as whether workers involved in crop production in source countries can be compensated via the resulting formal trade expansion, depends on the openness of the source country.
The authors conclude that some of these findings provide a partial explanation for the mixed results from the global war on drugs over the past few decades.