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 countries in south and central America form a part of least developed countries in the world. These countries need basic facilities like infrastructure, capital investment, education and poverty alleviation and improved standard of living for the people. Achieving all this is definitely going to take lot investment and entrepreneurship.

If drug money is involved in such a scenario, people who are not very educated or not capable of getting any white collar job will be attracted toward that easy money. Drug money is illegal and doesn't take much effort except an organized crime syndicate. This will have several effects on the economy of these south and central American economies:

• People with less skill and education will be attracted to crime and drugs and easy money making. Growing the drug business and involving the future generations into it too. This will leave population dependent on drug money uneducated and unskilled unable to do any legitimate job.
• With easy money coming from drugs, the entrepreneurs will be too much dependent on those and will not be able to develop a legitimate source of income, making them dependent on drug money which doesn't have much future and will harm the neighboring countries.
• Cash flow from drugs will give income to the people increasing demand in the economy but with no supply to fulfill those demand inflation will creep in affecting the other exports and making them uncompetitive. Forcing he dependence on the drug money.

IF drug money gets involved it form a loop where other businesses go out and people get more involved in the same, keeping them unskilled, uneducated and incapable to do any legitimate business forcing hem to increase the drug business and enforcing the loop.