Drug Trafficking and Its Impact on Colombia: An Economic Overview

By Garcia, Ricardo Rocha | Canadian Journal of Latin American & Caribbean Studies, January-July 2003 | Go to article overview

Drug Trafficking and Its Impact on Colombia: An Economic Overview


Garcia, Ricardo Rocha, Canadian Journal of Latin American & Caribbean Studies


Abstract. This article analyzes the effects of drug trafficking on the Colombian economy and concludes that its overall impact has been negative. It questions the idea, commonly held in Colombia, that this phenomenon has had mixed social and political impacts, but that its crucial role in sustaining the national economy has been beneficial. The repatriation of money equivalent to 3% of GDP is considerable, but not overwhelming. Most important, this money has not been of much benefit to the rest of the economy, since it was mainly invested in luxury construction and speculation in rural property. Furthermore, repatriation has not had a strong effect on the exchange rate, as previously thought. To form a comprehensive picture of the economic impact of drug traffic, other effects should be taken into account, such as increasing corruption and violence, distortions in the allocation of public funds and in processes of savings and investment, and environmental harm. Initial attempts at estimating the economic cost of these factors sustain the argument that the economic effects of the drug trade on Colombia have been negative.

Resume. Cet article analyse les effets du trafic de drogue sur l'economie colombienne et conclue que, dans l'ensemble, son impact a ete negatif. On y questionne l'idee, communement soutenue en Colombie, que ce phenomene a eu des impacts sociaux et politiques mitiges, mais que son role de soutien de l'economie nationale a ete benefique. Le rapatriement de cet argent, equivalent a 3% du PIB est considerable, mais pas exorbitant. Qui plus est, cet argent n'a pas ete benefique pour le reste de l'economie, puisqu'il a principalement ete investi dans la construction immobiliere de luxe et la speculation sur la propriete rurale. De plus, le rapatriement n'a pas eu d'effets importants sur les taux de change, tel qu'initialement prevu. Une meilleure vision d'ensemble sur l'impact economique du trafic de drogue exige de prendre en compte d'autres facteurs, tels que la corruption et la violence grandissante, les distorsions dans l'allocation de fonds publiques et les processus d'epargne et d'investissement, ainsi que la degradation environnementale. Les tentatives initiales d'evaluation des co-ts economiques de ces facteurs renforcent l'argument que les effets economiques du commerce de drogues en Colombie ont ete negatifs.

Introduction

Colombia's economy, the fifth largest in Latin America, has been characterized by steady growth over a long period of time, and can boast an increasingly diversified and internationalized production sector. Colombia has also enjoyed a long-lasting democracy. Nonetheless, little of this is perceived by international opinion; from the 1990s onwards, the very mention of Colombia has immediately conjured up images of drug trafficking and the criminality associated with it. Of course there is a reason for this: by the end of the 1990s, Colombia had become the principal supplier of illegal drugs in the Andean area, while the country's economy had weakened considerably and its sociopolitical situation had become seriously impaired. There has been much discussion, both in Colombia and abroad, about the real economic and socio-political effects of this illegal traffic. Many people believe that Colombia's economy depends on the repatriation of enormous profits from the drug trade, and that therefore its impact--in economic terms, at least--has been beneficial.

Economic studies have a great deal to teach us on this matter, and this article proposes to bring together some of the findings of such studies. The central issue is the repercussions of drug trafficking on the Colombian economy, but we will also look at what led to the drug trade in Colombia and its socio-political consequences. By way of introduction, the first section will outline the development of the drug economy between the years 1980 and 2000. The second section deals with the earnings from the drug trade that are brought back into the country, describing the channels used to effect this repatriation of funds and the relationship between this amount of money and Colombia's macroeconomy, as well as the economy in the various regions and sectors of Colombia. …

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