Governance and Drug Prices: An Empirical Analysis Within the European Monetary Union

Abstract

This study employs a panel data analysis to explore the determinants of cocaine and heroin prices within the European Monetary Union (EMU) from 2002 to 2021. Using economic and governance indicators, our approach provides a nuanced understanding of how governance affects drug market dynamics. The main objective of this study is to investigate and provide empirical evidence for the relationship between governance performance and the pricing of illicit drugs. Additionally, the study highlights that different aspects of governance have varying effects on specific types of drugs. The empirical evidence shows that stronger governance structures are associated with higher drug prices, as higher risk leads to higher prices. Moreover, the findings reveal that the rule of law impacts drug prices in general, while corruption specifically affects heroin prices. This research provides a unique contribution by linking governance performance directly to the pricing of illicit drugs within the context of the European Monetary Union. Unlike existing studies that focus predominantly on the medical, psychological, or criminal aspects of drug use, our study emphasizes economic and governance factors influencing drug prices, offering a novel perspective for policymakers and stakeholders in the fight against drug trafficking. To the best of our knowledge, this is the first model for illicit drug pricing.