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Cocaine: The Complementarity Between Legal and Illegal Trade

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Abstract

The smuggling cost of an imported illegal good decreases as the volume of legally imported goods increases. First because more imports are typically associated to an increased number of transporters, which is an increased supply of potential smugglers. Second because, as the number of shipments increases, the individual inspection probability decreases, lowering the risk born by the smugglers and thus their compensation. I test this theory using data on the market for cocaine, finding empirical support: in a panel of countries, an increased volume of imports is robustly associated to a decreased price of cocaine. Legal and illegal trade appear to be complementary.

Suggested Citation

  • Francesco Flaviano Russo, 2010. "Cocaine: The Complementarity Between Legal and Illegal Trade," CSEF Working Papers 253, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:253
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    File URL: http://www.csef.it/WP/wp253.pdf
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    Keywords

    Illegal Trade; Smuggling Cost; Illegal Drugs;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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