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Economic and Institutional Repercussions of the Drug Trade in Colombia

Roberto Steiner and Alejandra Corchuelo

CEDE- Universidad de los Andes
December, 1999

The influence of drug trafficking on Colombia’s economy and society is undeniable.The export of illegal drugs (ID) bringsconsiderable sums of hard currency into Colombia . In addition, local spending by the owners of this hard currency has secondary and regional effects, which cannot be ignored. This study carries out a careful review of specialized literature dealing with the economic effects of drug trafficking. It shows that the collateral effects of drug trafficking – “Dutch disease”, contraband, land tenure concentration, disincentives to domestic and foreign investment, and changes in key relative prices – far outweigh the positive effects that tend to be emphasized in the mass media.

Certainly, other effects of the illegal drug trade, aside from those purely economic, are entirely negative. Illegal drugs have played a key role in turning Colombia into one of the most violent countries in the world, where corrupt practices abound and the administration of justice works in a precarious fashion.

In addition, drug trafficking has strengthened the most violent participants in the armed conflict that Colombia has been suffering for more than forty years. As if this were not enough, the Colombian government has set aside a high percentage of the national budget to fight this plague at all levels, thereby neglecting key responsibilities in the areas of health, education, and infrastructure. Any objective evaluation of this topic must conclude that, aside from a few short-term economic benefits, Colombia is perhaps the main victim of the illegal drug trade.

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