Illicit Trade and the Global Economy

Illicit Trade and the Global Economy

Cláudia Costa Storti
Paul De Grauwe
Copyright Date: 2012
Published by: MIT Press
Pages: 280
  • Cite this Item
  • Book Info
    Illicit Trade and the Global Economy
    Book Description:

    As international trade has expanded dramatically in the postwar period--an expansion accelerated by the opening of China, Russia, India, and Eastern Europe--illicit international trade has grown in tandem with it. This volume uses the economist's toolkit to examine the economic, political, and social problems resulting from such illicit activities as illegal drug trade, smuggling, and organized crime. The contributors consider several aspects of the illegal drug market, including the sometimes puzzling relationships among purity, price, and risk; the effect of globalization on the heroin and cocaine markets, examined both through mathematical models and with empirical data from the U.K; the spread of khat, a psychoactive drug imported legally to the U.K. as a vegetable; and the economic effect of the "war on drugs" on producer and consumer countries. Other chapters examine the hidden financial flows of organized crime, patterns of smuggling in international trade, Iran's illicit trading activity, and the impact of mafia-like crime on foreign direct investment in Italy.

    eISBN: 978-0-262-29868-1
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Series Foreword
    (pp. vii-viii)

    This book is part of the CESifo Seminar Series. The series aims to cover topical policy issues in economics from a largely European perspective. The books in this series are the products of the papers and intensive debates that took place during the seminars hosted by CESifo, an international research network of renowned economists organized jointly by the Center for Economic Studies at Ludwig-Maximilians University, Munich, and the Ifo Institute for Economic Research. All publications in this series have been carefully selected and refereed by members of the CESifo research network....

  4. Contributors
    (pp. ix-x)
  5. 1 Introduction
    (pp. 1-6)
    Cláudia Costa Storti and Paul De Grauwe

    International trade has expanded massively in the postwar period. This expansion accelerated after 1980 when China opened it borders, and later toward the end of the 1980s when other major countries (India, Russia, and eastern Europe) followed suit. This opening up of borders has led to an explosion of legal international trade in goods and services and in the movements of capital and labor. In the wake of this expansion of legal international trade, illicit international trade has expanded at growth rates that most probably are of the same order of magnitude.

    The expansion of illicit trade raises many issues,...

  6. 2 Purity, Price, and Production: Are Drug Markets Different?
    (pp. 7-30)
    Peter Reuter and Jonathan P. Caulkins

    Markets for drugs, prostitution and other prohibited goods and services are just that—markets. The first duty of economists is to show that the tools of conventional economics are applicable for the illegal markets as well. That is easily enough done with respect to demand. Many studies have shown that demand for illicit drugs is downward sloping and has a price elasticity not so different from that for other dependence creating substances (Grossman 2004). The erroneous belief that drug addicts cannot cut their consumption was once very widely held, so this is no small achievement. Less has been done on...

  7. 3 The Hidden Financial Flows of Organized Crime: A Literature Review and Some Preliminary Empirical Results
    (pp. 31-48)
    Friedrich Schneider

    Until 2009 the economic development of the world economy and globalization made enormous gains in economic well-being possible, but this development has always contained risks, too. One of them is transnational or organized crime, which rose remarkably in the last twenty years.¹ Among others this raises the following two questions: (1) How is organized crime financed, and what do we know about this financing? (2) Which economic implications does organized crime have? In this chapter question 2 will be very briefly answered, the main focus lies on providing a much more detailed answer on the financing of organized crime—question...

  8. 4 Gotcha! A Profile of Smuggling in International Trade
    (pp. 49-72)
    Helge Berger and Volker Nitsch

    In principle, international trade statistics should match so that a country’s exports to a particular partner are identical to the partner’s recorded imports from that supplier. In practice, however, these numbers differ, for various reasons. For instance, a major source of discrepancy is the conceptual difference in valuation. Exporting countries report the value of goods at the initial point of departure (FOB), while import values refer to the value at the point of final destination, thereby including the costs of freight and insurance (CIF). As a result the CIF/FOB ratio has been frequently used in the literature as a measure...

  9. 5 Dark Side of Trade in Iran: Evidence from a Structural Equation Model
    (pp. 73-118)
    Mohammad Reza Farzanegan

    Smuggling, as an economic crime, is the hidden export and/or import of products without payment of the legal duties and taxes. Smuggling involves illegal trade in both legal and illegal goods. In this chapter, I examine the smuggling of legal goods, which can be imported or exported upon paying of taxes and duties. I do not consider illegal trafficking of human beings, such as illegal immigrants and/or sex slaves, or smuggling of weapons and illegal drugs. To investigate the concept of smuggling, I select the economists’ way to undercover the main incentives behind the illegal trade. The main carrots (e.g.,...

  10. 6 Modeling the Cocaine and Heroin Markets in the Era of Globalization and Drug Reduction Policies
    (pp. 119-158)
    Cláudia Costa Storti and Paul De Grauwe

    Over the last twenty years the use of cocaine and heroin in the world has remained steady. According to UNODC (2007), between 1992 and 2005, world consumption of these drugs rose by about 3.2 percent. These growth rates were 7.3 and 3.4 percent in Europe and 1.8 and 1.1 percent in the United States during the same period. Public policies to combat the drug phenomenon, namely those geared toward reducing drug supply have been extensive. In Europe, according to the existing information about six countries published by the EMCDDA (2007), the share of the overall public drug-related expenditure devoted to...

  11. 7 The Impact of Globalization on the UK Market for Illicit Drugs: Evidence from Interviews with Convicted Drug Traffickers
    (pp. 159-178)
    Kevin Marsh, Laura Wilson and Rachel Kenehan

    In the United Kingdom the heroin, cocaine, and crack market is estimated to have a value in excess of £4 billion per annum (Pudney et al. 2006). Such drugs have a substantial social cost beyond this market valuation. It is estimated that crack and heroin users commit £16 billion worth of crime each year to fund their drug use and cost a further £8 billion each year in their impact on health and social services (Pudney et al. 2006). To address the drug problem, the UK government developed the National Drug Strategy (Home Office 2002), whose mission (identified as four...

  12. 8 Khat, and the Informal Globalization of a Psychoactive Commodity
    (pp. 179-202)
    Axel Klein

    Globalization is often proffered as a cause for the seemingly ineluctable spread of illicit drugs. Yet without a clear definition of what is meant by the multiple processes of globalization, this can become a circular argument, listing the very thing one wishes to analyze as causal factor in its appearance. By looking at the spread of khat, a psychoactive stimulant plant that is a class 1 drug in the United States but imported legally as a vegetable in the United Kingdom, in this chapter I seek to contribute to the exploration of the analysis of both “drug trade” and “globalization.”...

  13. 9 Organized Crime and Foreign Direct Investment: The Italian Case
    (pp. 203-228)
    Vittorio Daniele and Ugo Marani

    In the geographical distribution of foreign direct investment (FDI) inflows into Italy, the eight less developed regions of the south (the ItalianMezzogiorno), receive a very modest share of FDI. For instance, in the period 2005 to 2007, these regions received less than 1 percent of total inflows; in Campania, the southern region with the best performance, FDI amounted to only 0.2 percent of all those inflows into Italy.

    The low share of FDI in the southern regions is also evinced by the “geography” of multinational firms located in Italy. In 2006 the firms with foreign participation in these regions...

  14. 10 The War on Illegal Drugs in Producer and Consumer Countries: A Simple Analytical Framework
    (pp. 229-256)
    Daniel Mejía and Pascual Restrepo

    During the last decade there has been a drastic intensification of the war against cocaine production and trafficking, not only in Latin American producer countries but also in some main consumer countries, such as the United States. For instance, in Colombia, where roughly 70 percent of the cocaine consumed in the world is produced, over the last eight years, the United States and the Colombia have allocated huge amounts of resources to combat production and trafficking under the so-called Plan Colombia.¹ According to the Colombian National Planning Department (DNP 2006), between 2000 and 2005, the US government spent roughly 3.8...

  15. Index
    (pp. 257-266)