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The Relationship Between Illicit Coca Production and Formal Economic Activity in Peru

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  • International Monetary Fund
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    Abstract

    This paper investigates the relationship between unrecorded economic activity associated with the production of illicit coca and formally recorded economic activity in Peru. It does so by attempting to construct new regional level estimates for coca production and by implementing recently developed panel time series methods that are robust to regional heterogeneity and unobserved regional inter-dependencies. The paper finds that 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.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/182.

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    Length: 51
    Date of creation: 01 Aug 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/182

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    Related research

    Keywords: Latin America; Agricultural commodities; Agricultural production; Economic growth; Regional shocks; Shadow economy; formal sector; cointegration; statistics; time series; formal sectors; computation; pooled time series; econometrics; standard deviation; sensitivity analysis; tax evasion; sample size; confidence intervals; equation; finite sample; surveys; numerical values; survey;

    This paper has been announced in the following NEP Reports:

    References

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    1. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
    2. Mercedes Garcia-Escribano, 2010. "Peru," IMF Working Papers 10/169, International Monetary Fund.
    3. Steiner, Roberto, 1998. "Colombia's income from the drug trade," World Development, Elsevier, vol. 26(6), pages 1013-1031, June.
    4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    5. Rasul Shams, 1992. "The drugs economy and anti-drug policy in developing countries," Intereconomics: Review of European Economic Policy, Springer, vol. 27(3), pages 139-144, May.
    6. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
    7. Melvin, Michael & Ladman, Jerry, 1991. "Coca Dollars and the Dollarization of South America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 752-63, November.
    8. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    9. Daniel Mejía & Carlos Esteban Posada, . "Cocaine Production and Trafficking: What do we know?," Borradores de Economia 444, Banco de la Republica de Colombia.
    10. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    11. Garcia-Escribano, Mercedes, 2010. "Peru: Drivers of De-dollarization," Working Papers 2010-011, Banco Central de Reserva del Perú.
    12. David Canning & Peter Pedroni, 2008. "Infrastructure, Long-Run Economic Growth And Causality Tests For Cointegrated Panels," Manchester School, University of Manchester, vol. 76(5), pages 504-527, 09.
    13. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
    14. Moreno-Sanchez, Rocio & Kraybill, David S. & Thompson, Stanley R., 2003. "An Econometric Analysis of Coca Eradication Policy in Colombia," World Development, Elsevier, vol. 31(2), pages 375-383, February.
    15. Michael Melvin & Bettina Peiers, 1996. "Dollarization In Developing Countries: Rational Remedy Or Domestic Dilemma?," Contemporary Economic Policy, Western Economic Association International, vol. 14(3), pages 30-40, 07.
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