The Impact of Drug Economy on Macroeconomic Aggregates: Evidence – Afghanistan

Asst. Prof. Abdul Ahad Zahid (MSc. Management and Economics – Ruhr University, Bochum, Germany)

Head of Quality Assurance Department, Kandahar University

 

Asst. Prof. Rahmatullah Pashtoon (M.B.A. Financial Management, SPSS IBM, DIR, DIB – Pune, India)

HoD, National Economics Dept., Economics Faculty, Kandahar University

Abstract

The main problem that GDP and the BoP-data are confronted within developing countries is the fact that informal and illegal transactions are not included in this data. Therefore, the published statistics do not show a true picture with respect to developing countries’ economic performance. This problem is tremendously large in Afghanistan, a country with a very large drug sector. The main objective of this study is to investigate the impacts of the drug (opium and heroin) sector on macroeconomic aggregates in Afghanistan over the period of 2011 – 2015. The study is based on a descriptive statistical approach, using GDP measurement approaches, BoP format and floating exchange rate regime theories. The net export values of the Afghan drug sector are gathered and secondary data is used. Results show that Afghanistan’sactual[1] GDP was an estimated to US$ 18.74 billion by 2011, of which US$ 2.4 billion is share of drug income. In the same year actual[2] trade deficit was estimated to US$ -5135million, however, drug income offsets the deficit by US$ 2400 million. Furthermore, due toa huge trade deficit Afghani must loss its value because Afghanistan’s central bank has to supply Afghani and buy foreign currencyto offset the trade deficit gap, however, Afghani is not depreciated yet. Thus, the drug income circulates in currency market of the country, which keeps Afghani exchange rate stable. Finally, conclusions are made that the drug sector made official macroeconomic data unrealistic andpositively supported GDP, balance of payments and Afghani exchange rate in the country.

 

Keywords: Afghanistan, Trade Deficit, Current Account Adjustment, Foreign Exchange, Underground Economy

 

JEL Classification: N55, H62, F32, F31, E26