Wednesday, June 20, 2007

Globalization and price of hard drugs

Although not strictly environmental (although it is agricultural) here is an interesting paper on the relationship between illicit drug prices and increasing globalisation.

The link between the price of drugs and the economic forces of supply and demand is a fascinating subject. One might expect enforcement and the technological ability of governments to stop drug smuggling to result in a price increase over time. So why have prices continued to fall? I am sure globalisation plays a large role and is investigated in the paper below (the Afghan conflict has certainly not helped raise the heroin price as supply has dramatically increased recently).

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"Globalization and the Price Decline of Illicit Drugs"
CESifo Working Paper Series No. 1990


Author: CLAUDIA COSTA STORTI
Banco de Portugal
Email: ccosta@bportugal.pt
Auth-Page: http://ssrn.com/author=261873

Contact: PAUL DE GRAUWE
Catholic University of Leuven (KUL) - Department of
Economics, CESifo (Center for Economic Studies and
Ifo Institute for Economic Research), Centre for
Economic Policy Research (CEPR)
Email: Paul.DeGrauwe@econ.kuleuven.ac.be
Auth-Page: http://ssrn.com/author=49412

Full Text: http://ssrn.com/abstract=988036

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.

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