The Economics of Cocaine: Bolivia as a Case Study

• Introduction to Bolivia– One of the poorest countries in South America –

Haiti is considered the poorest– 9.77 million people– Landlocked– Very unstable politically – new leaders very often

Bolivia$4,600 (2009 est.)

Rank 145Brazil $10,200 (2009 est.)

Rank 104

Afghanistan $800 (2009 est.) Rank 219

Norway $59,300 (2009 est.) Rank 5

USA $46,400 (2009 est.) Rank 11

GDP - per capita (PPP): note: data are in 2009 US dollars

Other data:

Population below poverty - 60%

Household income distribution:

-Lowest 10% - 0.5%

-Highest 10% - 44.1%

Coca leaf

• Around since 3,000 BC• Increases productivity• Used for medicine – tea for altitude

sickness• Ceremonies – coca offerings/readings• After Peru – Bolivia is the largest

producer

Economists’ advice for Less Developing Countries:

• Crops that are labor intensive• Decentralized – infrastructure is very poor• Cottage Industry promoting• Earn foreign exchange

Coca is it!

Cocaine market

Demand for cokeDemand for Coke keeps increasing

http://www.youtube.com/watch?v=LvPCrywyTQAhttp://www.youtube.com/watch?v=E0HKSYEPwV8&feature=related

Supply is stopped at the border ;)Supply stopped at the border

A Demand Schedule and Curve

LO-2

The Market Supply Curve

LO-2

Supply

Demand

Quantity

Price

$100

2 grams1 gram

$140

New Supply

New Demand

$160

Problems created by cocaine:

• Cocaine Republic• Deforestation• Corruption – high and low levels of

government• Communities are uprooted• Import chemicals – dump them in nature

Alternatives

http://www.drinkhacker.com/wp-content/uploads/2009/12/agwa-de-bolivia-coca-leaf-liqueur.jpg

Other cash crops for Bolivia

• Coffee• Rice• Citrus• Corn