Illegal drug trafficking and economic development in Colombia

The three essays cover the economic, political and institutional aspects of the impact drug smuggling activities have had on the Colombian economy. In the first essay, I examine drug smuggling activities as factors of institutional change forcing Colombia to adopt an export-led growth model of economic development. Revenues earned by illegally introducing drugs into industrialized countries were recycled through the parallel foreign exchange market and used to finance illegal imports. The industrialist class which had formally enjoyed a protected market was now forced to compete. The old privileges gone, the industrialist class had no incentive to support the existing inward-oriented model in the presence of "de facto" competition in their sectors and, thus, willingly accepted the "Apertura" program.In the second essay, the political dimension is examined. It is argued that the transition to an outward-oriented model did not occur as a reaction to a fiscal crisis and the corresponding macroeconomic disequilibrium, as has been the case for other countries in Latin America. I argue that events taking place in the political realm, more precisely a crisis of governance, led agents supporting and benefiting from the state to seek the establishment of a state which coincides in many aspects with the neo-liberal state. The crisis of governance is attributed to the efforts of drug traffickers who wanted to achieve legitimization of their activities and wealth. The direction of the transformation of the state is explained as a strategy to offset the erosion of its authority and to reestablish the state as the institution that guarantees basic socio-economic services.In the third essay I use the drug smuggling case and the described effects on the Colombian economy to explore the nature of institutional dynamics. Two models--Neoclassical and New Institutional--are compared in their explanatory power to conclude: first, that the change in relative prices generated institutional changes in the Colombian case. Second, that the degree of cohesion between formal and informal institutions determines the direction of institutional change. Finally, that the structure of the international market where changes in relative prices occur matters.U of I OnlyETDs are only available to UIUC Users without author permissio