ECONOMIC WELFARE ANALYSIS OF THE LEGALIZATION OF DRUGS: A CGE MICROSIMULATION MODEL FOR COLOMBIA

Laura Atuesta, Geoffrey J.D. Hewings

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper, a computable general equilibrium (CGE) microsimulation model is used to analyze the effects of an ex ante legalization of drugs on the Colombian economy. The model consists of 11 productive sectors, 3 different labor force categories with unemployment, and 20 households divided by income and location. Changes in wages and migration are estimated using a labor participation model, and a NIDS estimates the demands of the households. Changes in household economic welfare, measured by changes in income and prices (CV and EV measurements), are very sensitive to the reinvestments that the government makes in the economy. By analyzing six different scenarios with different assumptions about changes in drug prices, investments of the government, and the termination of the armed conflict, the results suggest that economic welfare improves when the government reinvests military expenditures in other productive sectors or when the 'economy of war' continues and the legalization does not end the armed conflict.

Original languageEnglish (US)
Pages (from-to)190-211
Number of pages22
JournalEconomic Systems Research
Volume25
Issue number2
DOIs
StatePublished - Jun 2013

Keywords

  • CGE microsimulation models
  • Drug legalization
  • Economic welfare analysis
  • Rural-urban migration

ASJC Scopus subject areas

  • Economics and Econometrics

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