The Relationship Between Illicit Coca Production and Formal Economic Activity in Peru
IMF Working Papers, August 1, 2011
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- The Relationship Between Illicit Coca Production and Formal Economic Activity in Peru
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Bibliographic details
- Authors: Peter L. Pedroni, Concha Verdugo Yepes
- Published: August 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781462310289.001
Summary and Main Finding
- This paper investigates the relationship between unrecorded economic activity associated with the production of illicit coca and formally recorded economic activity in Peru.
- On balance, illicit coca production crowds out formal sector production at the regional level, regardless of whether unanticipated changes occur nationally or regionally.
- However, total output nevertheless increases, since formal sector production is crowded out less than one for one.
Methodology
- The paper attempts to construct new regional level estimates for coca production.
- It implements recently developed panel time series methods that are robust to regional heterogeneity and unobserved regional inter-dependencies.
Implications and Interpretation
- Illicit coca production has a negative displacement effect on formal sector production at the regional level.
- Net economic activity rises because the reduction in formal sector output is smaller than the increase from illicit coca production (crowding out is less than one for one).
Subjects and Keywords
- Subject areas: Consumer price indexes, Consumption, Expenditure, Government debt management, Legal support in revenue administration, National accounts, Prices, Public financial management (PFM), Public investment spending, Revenue administration
- Keywords include: coca derivatives production, coca leaf production estimate, coca paste production, coca production, cocaine production, drugs, economic impact, Peru, production value, regional economics, WP, Latin America, Global, Europe, Asia and Pacific, Government debt management, Legal support in revenue administration, Public investment spending
This content unit: The Relationship Between Illicit Coca Production and Formal Economic Activity in Peru (IMF Working Paper No. 2011/182).