nep-int New Economics Papers
on International Trade
Issue of 2008‒03‒08
twenty-two papers chosen by
Martin Berka
Massey University

  1. The Greater the Differences, the Greater the Gains?, Second Version By Wilfred J. Ethier
  2. Market structure in the distribution sector and merchandise trade By Hildegunn Kyvik Nordas; Massimo Geloso Grosso; Enrico Pinali
  3. Fixed Export Cost heterogeneity, Trade and Welfare By Schröder, Philipp J.H.; Jørgensen, Jan G.
  4. The marginalization of Africa in world trade: By Bora, Saswati; Bouet, Antoine; Roy, Devesh
  5. Facilitating Trade and Structural Adjustment Chile: Experiences in Non-Member Economies By Csilla Bartók; Osamu Onodera
  6. External Economies of Scale and Comparative Advantage By Wilfred J. Ethier; Roy J. Ruffin
  7. Outsourcing in East Asia and its impact on the Japanese and Korean Labour Markets By Sanghoon Ahn; Kyoji Fukao; Keiko Ito
  8. Trade Openness and Gender in Uruguay: a CGE Analysis By Inés Terra; Marisa Bucheli; Carmen Estrades
  9. Facilitating Trade and Structural Adjustment Ecuador: Experiences in Non-Member Countries By Nanno Mulder; Miguel Ruiz
  10. Regional Trade Agreements in East Asia: Will They Be Sustainable? By Park, Innwon
  11. Preferential liberalization and its economy-wide effects in Honduras By Medvedev, Denis
  12. Trade Liberalisation and Economic Performance: Latin America versus East Asia 1970-2006 By Nanno Mulder; Osamu Onodera
  13. Trade with the West and Russia - A Long-term Perspective on Finnish Economic Growth, Fluctuations and Policies By Kari E.O. Alho
  14. Corporate Hierarchies and the Size of Nations: Theory and Evidence By Dalia Marin; Thierry Verdier
  15. Searching for an alternative to economic partnership agreements: By Bouet, Antoine; Laborde, David; Mevel, Simon
  16. ‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure By Dermot, Leahy; Catia , Montagna
  17. Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia By Kugler, M., Verhoogen, E.A.
  18. Facilitating Trade and Structural Adjustment: Experiences in Non-Member Countries By Osamu Onodera
  19. Firms’ International Status and Heterogeneity in Performance: Evidence From Italy By Alfredo Minerva; Lorenzo Casaburi; Valeria Gattai
  20. Analysis of Subsidies for Services: the Case of Export Subsidies By Massimo Geloso Grosso
  21. Skilled and Unskilled Wage Dynamics in Italy in the ‘90s: Changes in the individual characteristics, institutions, trade and technology. By Anna M. Falzoni; Alessandra Venturini; Claudia Villosio
  22. The development impact of the illegality of drug trade By Soares, Rodrigo R.; Loayza, Norman V.; Keefer, Philip

  1. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: This paper addresses the fundamental question of whether, in a comparative-advantage context, the gains from trade will be greater when the differences between trading countries are greater. Such a presumption is established. The paper then discusses circumstances that could cause the presumption to fail.
    Keywords: trade gains, international differences
    JEL: D60 F13 H20
    Date: 2007–11–30
  2. By: Hildegunn Kyvik Nordas; Massimo Geloso Grosso; Enrico Pinali
    Abstract: This study aims at exploring how recent developments in the retail sector affect trade in consumer goods. It focuses on three areas of development: i) internationalisation; ii) market structure; and iii) the growing market share of retailers? private labels. It distinguishes between food and non-food products as there are significant differences between the sourcing patterns of these two product categories. The gravity model is extended by integrating a retail intermediary sector, and a novel estimation technique (zero inflated Poisson) is proposed. It is found that the foreign operations of a retailer are positively related to imports from the host to the home country of the retailer. The rate of market concentration and the market share of private labels are both found to be negatively related to imports of food and positively related to imports of non-food consumer goods, but private labels tend to shift sourcing towards low-income countries. Lower tariffs yield a stronger import response in countries with a less concentrated retail sector, particularly for food items suggesting that competition policy and trade policy are complementary. In developing countries the entry of international retailers can have a positive impact on exports and product quality.
    Keywords: retail sector, gravity model
    JEL: F12
    Date: 2008–02–01
  3. By: Schröder, Philipp J.H.; Jørgensen, Jan G.
    Abstract: Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal costs types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs there exists a positive bilateral tariff that maximizes national and world welfare.
    Keywords: Intra-industry trade; trade liberalization; monopolistic competition; heterogeneous firms;welfare; protectionism
    JEL: F15 F13 F12
    Date: 2007
  4. By: Bora, Saswati; Bouet, Antoine; Roy, Devesh
    Abstract: "In recent years, trade in Africa has assumed greater importance as a means of alleviating poverty, especially since the initiation of the Doha Round for development. At the same time, skepticism regarding the effectiveness of foreign aid has grown (Easterly 2006). Trade and aid have often been viewed as interchangeable, but “aid for trade” has recently gained prominence, with the result that the two factors are more often treated as complementary. Proponents of “aid for trade” argue that the capacity of developing countries to take advantage of any gains in market access through the Doha Round is hampered by a plethora of supply-side bottlenecks and costs, administrative constraints, and poor institutions. Aid for trade, thus, refers to additional aid to tackle trade-related constraints and adjustment costs in developing countries (Evenett 2005).1 Views differ as to what this package should entail, but many developing countries are in favor of building supplycapacity and trade-related infrastructure (IATP 2006)." from text
    Keywords: Trade policy, Market access, Economic assistance, Poverty alleviation, Doha Developmental Round of the World Trade Organization (WTO), Trade reform, Protectionism, Trade barriers, exports, International trade,
    Date: 2007
  5. By: Csilla Bartók; Osamu Onodera
    Abstract: This paper is the first of four country case studies which is a part of a broader research programme addressing trade and structural adjustment issues in non-member economies which was conducted as a follow-up to Trade and Structural Adjustment: Embracing Globalisation (OECD, 2005) which identified policies for successful trade-related structural adjustment. This paper studies the trade liberalisation experience of Chile from 1973 onward. The report consists of 5 main parts; Part 1 provides the introduction, part 2 looks at the trade liberalisation in Chile which was implemented in three phases, (1) initial trade reforms (1973-84), (2) trade reform after a temporary policy reversal(1985-89) and (3) after 1990. Part 3 looks at the evolution and structure of exports and imports, and Part 4 looks at sectoral developments in the copper industry, agrofood industry, wood and wooden products industry and the textiles and clothing industry. Part 5 concludes with lessons learnt. The experience of Chile shows that trade reform has been essential for realigning the incentive structures in Chile. A stable macroeconomic environment, trade reform starting with the elimination of quantitative restrictions, introduction of flat tariffs, coherent exchange rate policy, sound institutional framework, rule of law, mild promotion of exports, use of foreign capital, and relatively flexible labour market policies have been important factors in Chili's successful trade liberalisation experience.
    Keywords: trade, liberalisation, exchange rate policy, tariffs, Chile, regional trade agreements, structural adjustment, Macroeconomic instability, import-substitution, liberalization
    Date: 2007–10–25
  6. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania); Roy J. Ruffin (Department of Economics, University of Houston)
    Abstract: We investigate the interplay, in international trade, between comparative advantage and increasing returns to scale that are external to the firm. We focus especially on “advantage reversals,” where the country with a comparative-cost disadvantage in producing a good nevertheless is able to export it because of the economies of large-scale production. We examine trade policy in such a situation, looking especially at whether that policy should aim at basic policy-regime change.
    Keywords: external increasing returns to scale, advantage reversals, size reversals, scale-dominant economy, comparative-cost dominant economy
    JEL: F10 F12 F13
    Date: 2008–02–19
  7. By: Sanghoon Ahn; Kyoji Fukao; Keiko Ito
    Abstract: This study describes the changing patterns of intermediate goods trade and foreign direct investment (FDI) in East Asia and investigates the impacts of international outsourcing on the Japanese and the Korean labour markets. The main findings of the paper are as follows. First, intra-regional trade in East Asia grew remarkably during the period 1990-2003. While overall trade with the rest of the world roughly doubled in this period, intra-regional trade in East Asia more than tripled. Second, the main factor behind increased intra-regional trade in East Asia was the trade in intermediate goods through outsourcing and the international fragmentation of production. Third, reflecting the fact that outsourcing to Asia (particularly to China) has a negative impact on the demand for workers with lower education and a positive impact on the demand for workers with higher education, relative wage shares of workers by educational attainment have changed substantially both in Japan and Korea. Fourth, our empirical analysis provides evidence of labour demand shift towards skilled labour in Japanese manufacturing as a result of outsourcing. For Korea, although the overall effects of outsourcing have been insignificant in Korea partly because a substantial part of Korean outsourcing remained directed towards Japan, our results imply that labour demand would shift away from less-skilled workers towards more-skilled workers if outsourcing to China increased and outsourcing to Japan decreased in the future.
    Keywords: Korea, Japan, manufacturing, outsourcing
    JEL: F14 F16 F23
    Date: 2008–01–22
  8. By: Inés Terra (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Marisa Bucheli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Carmen Estrades (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: In this paper we analyze the gender differentiated impacts of trade openness in Uruguay using a gender aware CGE model with endogenous labor supply and a home production function. We simulate complete trade liberalization and an increase in tariffs to the level of 1994. Trade liberalization increases female employment and wages, reducing the gender wage gap. These findings are consistent with Çagatay (2001) and Fofana et al (2003). The effect of trade openness on time distribution of workers is different by skills. Skilled workers, mainly women, reduce time spent in leisure and domestic work increasing labor supply. In contrast, unskilled workers increase leisure time, especially men. Trade openness leads to a more equitable distribution of time spent in domestic work. When there is a more imperfect substitution among genders in the home production function, women reduce more leisure time. The increase in tariff to the level of 1994 has the opposite results.
    Keywords: trade openness, gender, general equilibrium model, home production, leisure, wage curve
    JEL: D13 J16 J22 F16
    Date: 2007–10
  9. By: Nanno Mulder; Miguel Ruiz
    Abstract: This paper is the second of four country case studies which is a part of a broader research programme addressing trade and structural adjustment issues in non-member economies which was conducted as a follow-up to Trade and Structural Adjustment: Embracing Globalisation (OECD, 2005) which identified policies for successful trade-related structural adjustment. This paper studies the trade liberalisation experience of Ecuador from the 1970s onwards. The report consists of 5 main sections; Section 1 provides the introduction, while section 2 provides an overview of Ecuador?s economic reforms from the 1970s onwards until the 2000s. Section 3 looks at the structural changes in the economy and trade dynamics behind the changes. Section 4 takes a closer look at structural adjustment in four sectors, the cut-flowers, processed tuna, cereals, and textiles and clothing. Section 5 concludes with lessons learnt. Ecuador provides a case of a country whose trade liberalisation and other structural reforms have led to mixed results. While trade liberalisation has improved resource allocations, macroeconomic instability, incomplete reforms, weak institutions and relatively restrictive (but also highly informal) labour markets have made it difficult for Ecuador to reap the full benefits of trade liberalisation.
    Keywords: trade, liberalisation, exchange rate policy, tariffs, structural adjustment, cut flower, Macroeconomic instability, import-substitution, liberalization
    Date: 2008–01–31
  10. By: Park, Innwon
    Abstract: Searching for sustainable regional trade agreements (RTAs) for East Asia, we quantitatively evaluated the likely impact of proposed East Asian RTA strategies─(i) the AFTA (a being-left-alone strategy), (ii) an ASEAN Hub RTA (a hub-and-spoke type of overlapping RTA strategy), (iii) the AFTA vs a China-Japan-Korea RTA (a duplicating or competing RTA strategy), (iv) an ASEAN+3 RTA (an expansionary RTA strategy)─on the East Asian economies and the world economy with respect to consumption, production, volume of trade, and terms of trade effect by applying a multi-country and multi-sector CGE model. We found that there was no perfectly Pareto improving RTA strategy among the four different scenarios proposed for East Asia relative to the existing AFTA. However, the expansionary ASEAN+3 RTA can be a sustainable Pareto efficient policy option because the members’ gains were significantly positive enough with more evenly distributed gains between members. The effects on world welfare were also positive enough and the negative effect on nonmembers was not very significant. More interestingly, if the East Asian countries are willing to cooperate with their Pacific Basin partners to form an APEC level of RTA, the evolution toward a global trade bloc can be counted as a Pareto improvement for East Asian economies in every aspect we measure.
    Keywords: regional trade agreements; sustainability; Pareto efficiency; CGE model; East Asia
    JEL: C68 F15 O53
    Date: 2008–02
  11. By: Medvedev, Denis
    Abstract: This paper quantifies the likely benefits of trade and investment liberalization in a small, poor, open economy, using the accession of Honduras to the Dominican Republic-Central American Free Trade Agreement as a case study. The results show that bilateral trade liberalization with the United States is likely to have almost no effect on welfare in Honduras, while the reciprocal removal of protection vis-a-vis the rest of Central America would lead to significantly larger gains. Potential gains from increased net foreign direct investment inflows overwhelm those expected from trade reform alone, particularly if the new foreign direct investment generates productivity spillovers. However, if it is to replace Honduran investment rather than complement domestic capital formation, growth performance is unlikely to improve and may even suffer. The paper ' s results identify several areas for policy attention by Honduran policy makers to make the Dominican Republic-Central American Free Trade Agreement more development-friendly. These include carefully considering the budgetary implications of trade reform, widening social safety nets to counter the trends toward increasing income inequality, and sequencing the reforms to ensure a close alignment of Honduras ' comparative advantage on the regional and global markets.
    Keywords: Economic Theory & Research,Currencies and Exchange Rates,Free Trade,Emerging Markets,Debt Markets
    Date: 2008–02–01
  12. By: Nanno Mulder; Osamu Onodera
    Abstract: This paper, together with four other country case studies, is a part of a broader research programme addressing trade and structural adjustment issues in non-member economies which was conducted as a follow-up to Trade and Structural Adjustment: Embracing Globalisation (OECD, 2005) which identified policies for successful trade-related structural adjustment. This paper studies the trade liberalisation and structural adjustment experiences and their outcomes in terms of economic and trade performance in East Asia and Latin America. The report consists of 5 main sections; After an introduction, Section A first looks at the growth performance and role of trade and FDI. Section B looks at trade related policy trends in the two regions while section C looks at some trade and foreign direct investment indicators. Section D compares the structural adjustment in the two regions and Section E concludes.
    Keywords: trade, liberalisation, Latin America, structural adjustment, liberalization
    Date: 2008–02–07
  13. By: Kari E.O. Alho
    Abstract: ABSTRACT : The paper considers growth and fluctuations in the Finnish economy in the post-war period starting from her long-run dual strategy vis-à-vis export markets in Western Europe and Russia. Finland has wanted to utilise the more rapid growth based on deeper integration in the former, but has simultaneously wanted to reap the gains linked to her proximity to the latter. We build a theoretical open economy model based on export supply and demand and then for the whole economy and analyse the role of economic policies, notably exchange rate policies in this connection. Empirically, we estimate the relationships using the SVAR methodology identifying the relevant demand and supply shocks and shocks in policy responses. The results clearly show that shifts in competitiveness have played a key role in boosting both categories of exports. However, firms have been able to shift on their own in exports from the Russian market to the West when needed. Productivity gains have been linked to Western exports, but not to exports to Russia. From a macroeconomic point of view exchange rate policies have been roughly as important as fiscal policies to explain economic fluctuations, although the conclusion on this quite sensitively depends on the SVAR model used. However, economic policies have been less important than the aggregate demand and supply shocks.
    Keywords: exports, macro economy, economic policies, SVAR
    JEL: F41 F43 F12
    Date: 2008–02–27
  14. By: Dalia Marin (Department of Economics, Ludwigstr. 28, 80539 Munich, phone: +49 89 2180 2446, email:; Thierry Verdier (Paris School of Economics, 48 Boulevard Jourdan 75014 Paris, France. phone: +33 1 43 13 63 08, e-mail:
    Abstract: Corporate organization varies within a country and across countries with country size. The paper starts by establishing some facts about corporate organization based on unique data of 660 Austrian and German corporations. The larger country (Germany) has larger firms with flatter and more decentralized corporate hierarchies compared to the smaller country (Austria). Firms in the larger country change their organization less fast than firms in the smaller country. Over time firms have been introducing less hierarchical organizations by delegating power to lower levels of the corporation. We develop a theory which explains these facts and which links these features to the trade environment that countries and firms face. We introduce firms with internal hierarchies in a Krugman (1980) cum Melitz and Ottaviano (2007) model of trade. We show that international trade and the toughness of competition in international markets induce a power struggle in firms which eventually leads to decentralized corporate hierarchies. We offer empirical evidence which is consistent with the models predictions.
    Keywords: international trade with endogenous firm organizations, endogenous congruence in the firm, corporate organization in similar countries, empirical test of the theory of the firm
    JEL: F12 F14 L22 D23
    Date: 2008–02
  15. By: Bouet, Antoine; Laborde, David; Mevel, Simon
    Abstract: "On January 1, 2008, Economic Partnerships Agreements (EPAs), currently being negotiated between the European Union (EU) and nearly 80 African, Caribbean, and Pacific (ACP) countries, are expected to replace the Cotonou Agreement, which has governed trade relations between these countries since 2000. The Cotonou Agreement, implemented through a waiver from the World Trade Organization (WTO), expires on December 31, 2007. At the second EU-Africa summit, held in Lisbon on December 8–9, trade issues have been a major bone of contention, with several African heads of state denouncing the way the negotiation had been led by the European Commission. At the end of the summit, the Commission agreed to continue EPA negotiations in 2008." from text
    Keywords: International agreements, Trade agreements,
    Date: 2007
  16. By: Dermot, Leahy; Catia , Montagna
    Abstract: We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.
    Keywords: Outsourcing; Vertical Integration; Trade Liberalisation; Oligopoly
    JEL: L2 F2 F1 L1
    Date: 2007
  17. By: Kugler, M., Verhoogen, E.A. (Wilfrid Laurier University)
    Abstract: This paper uses uniquely rich and representative data on the unit values of “outputs” (products) and inputs of Colombian manufacturing plants to draw inferences about the extent of quality differentiation at the plant level. We extend the Melitz (2003) framework to include heterogeneity of inputs and a complementarity between plant productivity and input quality in producing output quality and we show that the resulting model carries distinctive implications for two simple reduced-form correlations – between output prices and plant size and between input prices and plant size – and for how those correlations vary across sectors. We then document three plant level facts: (1) output prices are positively correlated with plant size within industries, on average; (2) input prices are positively correlated with plant size within industries, on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R&D intensity of U.S. firms. The correlations between export status and input and output prices are similar to those for plant size. These facts are consistent with our model of quality differentiation of both outputs and inputs, and difficult to reconcile with models that assume homogeneity or symmetry of either set of goods. Beyond recommending an amendment of the Melitz (2003) model, the results highlight shortcomings of standard methods of productivity estimation, generalize and provide an explanation for the well-known employer size-wage effect, and suggest new channels through which liberalization of trade in output markets may affect input markets and vice-versa.
    Keywords: Quality upgrading; plant capability; exports
    JEL: O30 F10
    Date: 2008–01
  18. By: Osamu Onodera
    Abstract: This paper, together with five other background studies, is a part of a broader research programme addressing trade and structural adjustment issues in non-member economies which was conducted as a follow-up to Trade and Structural Adjustment: Embracing Globalisation (OECD, 2005) which identified policies for successful trade-related structural adjustment. This paper revisits and elaborates on specific parts of these policy recommendations with a view to reassessing their applicability to developing countries. The five background studies; a comparison study comparing East Asia and Latin America and four country case studies (Chile, Ecuador, the Philippines and Thailand), which were conducted as a part of this project, form the basis for the analysis, supplemented by existing literature. The report consists of 4 main sections; The first section provides an introduction and the second section provides an overview of the liberalisation experiences of the four countries. In the third section, some of the ?recommendations in OECD (2005) are revisited with a greater focus on developing countries, covering such issues as i) trade and investment policies, ii) macroeconomic policy, iii) social safety nets and labour market policies, iv) policies to facilitate export response, v) institutional frameworks and regulatory and competition environment, vi) role of multilateral cooperation and regional and bilateral initiatives, and vii) broad based approach to reforms. The fourth section concludes.
    Keywords: exchange rates, trade, macroeconomic policies, social safety net, structural adjustment
    Date: 2008–02–05
  19. By: Alfredo Minerva (Università di Bologna); Lorenzo Casaburi (Università di Bologna); Valeria Gattai (Università di Bologna, ISESAO, Università Commerciale “L. Bocconi”)
    Abstract: This paper revisits the empirical evidence about the link between firms’ performance and their international status, based on a large sample of Italian enterprises. To this purpose, we merged two waves of the Capitalia survey (1998-2000, and 2001-2003) retrieving firm level data for roughly 7,000 units. Three results stand out from our empirical exercise. First, firms that engage in the foreign production of final goods, in addition to export activities, are more productive than firms that only export abroad. Second, firms that engage in final goods off-shoring are more productive than firms that engage in inputs off-shoring. Third, in terms of the productivity dynamics over the period 1998-2003, exporters’ performance in Italy was not any better than the non-exporters’ one. Our results support the view that the better performance (in static terms) of globally engaged firms is chiefly due to the selection caused by the fixed costs associated to international operations.
    Keywords: Export, Heterogeneous Firms, Italy, Off-shoring, Productivity
    JEL: F10 F20 L10 L20 L60
    Date: 2008–01
  20. By: Massimo Geloso Grosso
    Abstract: This study presents an exploratory analysis of export subsidies in the services field. It draws from a variety of sources in an effort to provide insights into the characteristics and use of these measures. The report, while not generating accurate measures of the extent and effects of export subsidies for services, provides evidence that these measures are used by many countries in the developed and developing worlds to support a wide range of services sectors. The analysis also indicates that broadly speaking the definitions contained in the WTO Agreement on Subsidies and Countervailing Measures (ASCM) are relevant for services. The most important types of export support appear to be direct tax incentives, particularly profit tax exemptions or reductions. Based on the detailed analysis of export subsidies for services, the study then discusses some possible elements of a definition of these measures.
    Keywords: services, GATS
    Date: 2008–01–28
  21. By: Anna M. Falzoni; Alessandra Venturini; Claudia Villosio
    Abstract: In this paper we use individual micro data on workers combined with industry and regional data to study the wage dynamics of skilled and unskilled workers in Italy in the period 1991-1998. Being different to previous empirical studies, our data allow us to explore in a unique framework the role of many of the factors indicated in the literature as possible causes of the widening of the wage gap between skilled and unskilled workers: changes in the individual characteristics of workers, changes in the institutions of the labour market, increasing international integration and skill-biased technological progress. Our results show that international integration, both in terms of trade in goods and in terms of international labour mobility, plays a role in determining the wage dynamics of skilled (white collar) and of unskilled (blue collar) workers. In addition, in line with the research in labour economics, our findings show that the individual characteristics of workers, and the institutional variables matter more in explaining skilled and unskilled wage dynamics than differential wage one.
    Keywords: Skilled and unskilled wages, individual characteristics, labour market institutions, international trade.
    JEL: J31 F16
    Date: 2007
  22. By: Soares, Rodrigo R.; Loayza, Norman V.; Keefer, Philip
    Abstract: This essay reviews many of the less considered consequences of the war on drugs, particularly the consequences for developing countries, and weighs them against the evidence that exists regarding the likely efficacy of current strategies to curb drug use and trade. The most important unintended consequences of drug prohibition are the following. First, the large demand for drugs, particularly in developed countries, generates the possibility of massive profits to potential drug providers. Since they cannot be organized freely and under the protection of the law, they resort to the formation of organized crime groups, using violence and corruption as their means of survival and expansion. In severe cases, the challenge to the state is such that public stability and safety are severely compromised. Second, prohibition and its derived illegal marke t imply the expropriation of endowments and resources used to produce and trade drugs. In many instances, this entails the transfer of wealth from poor to rich countries and from poor peasants to rich (and ruthless) traders. Third, criminalization can exacerbate the net health effects of drug use. These consequences are so pernicious that they call for a fundamental review of drug policy around the world.
    Keywords: Crime and Society,Health Monitoring & Evaluation,Economic Theory & Research,Post Conflict Reconstruction,Population Policies
    Date: 2008–03–01

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