Question

Explain how the inflow of drug profits into low income countries in South and Central America could adversely affect legitimate businesses and diminish economic growth in those countries

Answer 1

The inflow of drug profits into low income nations in South and Central America could negatively impact the legitimate businesses and diminish economic growth in America in the below given ways:

--Illicit drug businesses destabilized the economies of lower income where resources are not very insufficient to cater economy development

--The countries suspected to be involved in drug trafficking and suspect to money laundering become less attractive to potential customers. As a result legitimate business loose customers thus hampering the economic growth

--Due to these inflows an overvalued exchange rate occurs because provision of such drag from these nations create much demand for the domestic currencies of these low income countries which over valued the currency. The over valuation leads to negatively impact the export thus hindering economic development

--Drug profits bring about corruption in legitimate business which deny the government taxes creates an hindrance to the economic growth

--Inflow of drug profits are not counter by macroeconomics decisions to which these inflows create crowding out effects for legitimate investments thus leading to higher interest rates to emerge

--Emergence of unfair competition and several other illegal businesses in order to aid the drug business that again creates problems in legitimate businesses development

--Creating income inequity in the economy

--Illicit drug businesses encourage conspicuous consumptions at the expense of long term investment.