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

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.
Publication date: August 2011
ISBN: 9781462310289
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Economics- Macroeconomics , Economics / General , International - Economics , 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

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