International Journal of Drug Policy 25 (2014) 235243

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International Journal of Drug Policy

journal homepage: www.elsevier.com/locate/drugpo

Research paper

Risks, prices, and positions: A social network analysis of illegal drug

trafcking in the world-economy
Rmi Boivin a,b,
a
b

School of criminology, University of Montreal, C.P. 6128, succursale Centre-ville, Montral, QC, H3C 3J7, Canada
International Centre for Comparative Criminology, C.P. 6128, succursale Centre-ville, Montral, QC, H3C 3J7, Canada

a r t i c l e

i n f o

Article history:
Received 17 December 2012
Received in revised form
29 November 2013
Accepted 9 December 2013
Keywords:
Drug prices
Drug trafcking
Risks and prices model
World-system perspective
Network analysis
Drug law enforcement

a b s t r a c t
Background: Illegal drug prices are extremely high, compared to similar goods. There is, however, considerable variation in value depending on place, market level and type of drugs. A prominent framework for
the study of illegal drugs is the risks and prices model (Reuter & Kleiman, 1986). Enforcement is seen as
a tax added to the regular price. In this paper, it is argued that such economic models are not sufcient
to explain price variations at country-level. Drug markets are analysed as global trade networks in which
a countrys position has an impact on various features, including illegal drug prices.
Methodology: This paper uses social network analysis (SNA) to explain price markups between pairs of
countries involved in the trafcking of illegal drugs between 1998 and 2007. It aims to explore a simple
question: why do prices increase between two countries? Using relational data from various international
organizations, separate trade networks were built for cocaine, heroin and cannabis. Wholesale price
markups are predicted with measures of supply, demand, risks of seizures, geographic distance and
global positioning within the networks. Reported prices (in $US) and purchasing power parity-adjusted
values are analysed.
Results: Drug prices increase more sharply when drugs are headed to countries where law enforcement
imposes higher costs on trafckers. The position and role of a country in global drug markets are also
closely associated with the value of drugs. Price markups are lower if the destination country is a transit to
large potential markets. Furthermore, price markups for cocaine and heroin are more pronounced when
drugs are exported to countries that are better positioned in the legitimate world-economy, suggesting
that relations in legal and illegal markets are directed in opposite directions.
Conclusion: Consistent with the world-system perspective, evidence is found of coherent world drug
markets driven by both local realities and international relations.
2013 Elsevier B.V. All rights reserved.

Illegal drugs are extremely valuable: some types of drugs are

literally worth their weight in gold (Reuter & Greeneld, 2001).
There is, however, considerable variation in value depending on
place and market (Caulkins & Reuter, 1998; Wilson & Stevens,
2008). For example, a kilo of cocaine that is worth less than $US
1000 in Bolivia could easily sell for more than $US 100 000 in the
streets of the United States, Australia, or France (UNODC, 2011).
Traditional economic models provide a partial explanation of why
drugs are more expensive in some countries than others because in
many ways, drug markets act as trade networks; buyers and sellers

Correspondence address: University of Montreal, School of criminology, C.P.

6128, succursale Centre-ville, Montreal, Quebec, Canada H3C3J7.
Tel.: +1 514 343 6111x2473.
E-mail address: remi.boivin@umontreal.ca
0955-3959/$ see front matter 2013 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.drugpo.2013.12.004

willingly collaborate in an effort to exchange a commodity

(Caulkins & Reuter, 2007, 2010; Naylor, 2003).
However, a clear difference between drug markets and other
trade networks is the legal status of the commodity. It has long been
recognized that the price and value of illegal commodities cannot
be fully explained by ordinary laws of supply and demand. The main
proposition of the current paper is that a countrys position within
global markets affects wholesale prices of illegal commodities, a
proposition underexploited in previous explanations. Drawing on
the larger literature on legal trade, this paper uses social network analysis (SNA) to explain price markups between pairs of
countries involved in the trafcking of illegal drugs. It draws on
Reuter & Kleimans risks and prices model and Wallersteins worldsystem perspective to analyse contemporary illegal drug markets.
An empirical analysis of wholesale prices of cocaine, heroin, and
cannabis for a sample of 173 countries from different parts of the
world is presented and discussed.

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R. Boivin / International Journal of Drug Policy 25 (2014) 235243

Prices, costs and risks

The price of any commodity is expected to continually increase
as the commodity moves from source to user. The rst owner will
sell his product at a price high enough to cover his own costs and
eventually make some prot. That buyer will likely sell at a higher
price, again to cover his own costs (which include the costs of the
rst owner) and make some prot, and so on. Costs are passed on
to the next buyer, who passes them on to the next, etc. until the
commodity reaches the nal buyer the user. In other words, prices
are in part determined by costs incurred by previous sellers who are
not involved in a given transaction. Where buyers are positioned in
the chain is closely associated to the purchase cost of commodities.
In addition to other expenses, traders of illegal commodities
incur specic costs. A prominent framework for the study of illegal drugs is the risks and prices model (Reuter & Kleiman, 1986).
Enforcement is seen as a tax an additional cost added to the
regular price. The model is conceptualized as a sequence of related
effects. First, enforcement imposes costs on drug dealers, in the
form of drug and asset seizures, compensation for risk of prison,
and compensation for risk of violence from other participants of
illegal markets (Caulkins & Reuter, 1998). Second, drug dealers
are in business to make money, so they pass [their] costs on to
users in the form of higher prices (Caulkins & Reuter, 2010, p. 215).
Because it is assumed that the main objective of drug law enforcement is to reduce drug consumption, Reuter & Kleimans third and
nal proposition is that higher prices reduce consumption. In the
strictest sense, enforcement efforts are successful only if they cause
a signicant reduction in drug consumption.
Such a theory requires considerable empirical testing, and more
than 25 years of research has brought important insights on all
three propositions. The most disappointing nding is that law
enforcement is rarely able to disrupt or seriously damage drug
markets (proposition 1; Layne et al., 2001; Mazerolle, Soole, &
Rombouts, 2001). At best, law enforcement interventions may
have a conned or temporary impact on specic markets, without
redening global markets.
The focus of this paper is on the second proposition of the risks
and prices model. While the existence of additional costs related
to drug enforcement is undisputed, how and when they are passed
to users is still a matter of discussion (Caulkins, 1994; Caulkins &
Reuter, 1998; DeSimone, 2006). The value of illegal drugs increases
almost exponentially after production, while price increases are
more modest for legal commodities (Reuter & Greeneld, 2001).
A version of this argument can be used to explain wholesale price
variations at country-level. It is expected that illegal drug prices
will be higher where costs imposed on drug trafckers are higher.
The context in which trafckers operate is crucial: if enforcement
efforts are weak or fairly easy to avoid, additional costs imposed
on trafckers are low and drug prices should be lower. On the
contrary, if the risks associated with trafcking are high, costs are
high, and prices will be high. The corollary is that trafckers who
acquire drugs at lower prices and assume fewer costs are able to
sell at lower prices; at country-level, it means that trafckers operating where enforcement has minimal effects on drug prices have
lower costs than trafckers operating in high-risk countries. Consequently, the structure of transnational drug trafcking is a key
element in a better understanding of price variations.

Drug trafcking in the world-economy

Structure may, however, have a more subtle effect on commodity prices. It is expected that some countries will have more
wealth than others due to differential access to raw materials, more effective production means, lower wages, etc. The

world-system perspective argues that todays world-economy is

a global trade network built on unequal political and economic
agreements (Chase-Dunn, 1989, 2002; Wallerstein, 1974, 1979).
The world-system argument is thus not only that some countries have more wealth than others, but that they have it at the
expense of others. Proponents of the world-system perspective
hold that the core-periphery hierarchy does not necessarily refer
to geographic regions but rather to countries that occupy similar positions in the world-economy. Examples of core countries
are the United States and Japan, and of peripheral countries, Togo
and Senegal. Semi-peripheral countries, such as New Zealand and
Argentina, are less dominant but still occupy an important position
in the world-economy (Chase-Dunn, 1989; Mahutga, 2006; Smith
& White, 1992; Snyder & Kick, 1979; Wallerstein, 1974, 1979).
In the legal world-economy, peripheral and semi-peripheral
countries are not able to produce necessary specialized commodities and must depend on core countries, which sell such
commodities at a high price. It has been argued that the situation is
reversed for illicit drugs (Boivin, 2013): core countries are not able
to produce enough if any drugs to meet national demand and are
forced to import from more peripheral countries. The situation is
most obvious for cocaine and heroin, which are produced in a limited number of non-dominant countries. Position in the system is
thus a direct function of means of production. An important structural consequence is that, all other things being equal, prices are
higher than they should be in importing countries. In other words,
because core countries depend largely on more peripheral countries for their supply of illegal drugs, prices are expected to increase
more rapidly when the trade is directed towards the core of the
world-economy.

Trade networks
A major contribution of the world-system perspective was to
shift the focus of analysis from individual countries to the relations
between them. Empirical tests of the world-system perspective
then quickly used tools of social network analysis (SNA). A similar trend can be observed for drug trafcking: recent editions of
the World Drug Report, a widely-cited annual publication by the
United Nations Ofce on Drugs and Crime (UNODC), include a discussion of drug ows and routes between countries. In a recent
publication, Paoli, Greeneld, and Reuter (2009) used the network
terminology to describe the world heroin market as a trade network in which distant regions can affect aspects of local markets,
but grounded their analysis in traditional economics.
However, Paoli et al.s work is a notable exception: drug trafcking is usually not analysed in relational terms. Farrell, Mansur, and
Tullis (1996), who analysed cocaine and heroin trafcking in Europe
during the 1980s and 1990s, still provide the most comprehensive examination of wholesale prices. Their analysis is interesting
because it shows how European drug markets evolved over a 10year period (19831993). It also introduces the idea that countries
had steady roles in the market throughout the period and that a
wide array of factors explain that situation. Farrell et al. observed
that wholesale prices were lower in the countries that serve as gateways to the European markets Spain, Portugal, and Turkey. In
neighbouring countries, drugs were a little more expensive, but
still cheaper than in most other countries, which is consistent with
the idea that prices increase with distance. They also observed
that drugs were expensive in Switzerland and concluded that it
reected a more general pattern: everything was more expensive in
Switzerland. Finally, Farrell et al. suggested that the level of risk for
importers was associated to wholesale prices, citing the example
of the Netherlands, a country that was thought to be more lenient
about drugs and where lower than expected prices were observed.

R. Boivin / International Journal of Drug Policy 25 (2014) 235243

Despite its descriptive nature, Farrell et al. (1996) offer an important contribution to the eld for at least two reasons. First, they
provide one of the few analyses of transnational drug trafcking
based on empirical data gathered by the UNODC. The UNODC data
has limitations but provides conveniently accessed information
unavailable anywhere else (Caulkins, 2007). Second, their study
was an attempt to build a general model of high-level trafcking that tries to account for price variations without focusing on
local and anecdotal explanations. Their tentative results demonstrated that country-level analyses are instructive and deserve
further research. Furthermore, while their results are consistent
with economic principles, Farrell et al. suggested that prices reect
the role of a country within the global drug trade. They nd evidence of a coherent European market driven by both local realities
and international relations.
Since the exploratory analysis of European drug prices by Farrell
et al. (1996), there has been virtually no attempt to formulate a
general model of country-level price variations. Costa Storti and De
Grauwe (2009a, 2009b) did use a theoretical model to explore the
impact of globalization on drug prices, but their analysis was aimed
at explaining variations of retail prices over time. This paper offers
an empirical test of the risks and prices model (Reuter & Kleiman,
1986) combined with propositions from the world-system perspective to explain illegal drug price increases at country-level.
Methodology
Data and network construction
The primary data for this study was gathered together by the
UNODC and covers a 10-year period from 1998 to 2007. The
UNODC releases an overview of various indicators of drug trafcking and consumption in its annual report, World Drug Report.
Most indicators are collected through an annual survey, the Annual
Questionnaire Reports (ARQ), which is lled out by ofcials in different countries. In instances in which ARQ data are not available, the
UNODC complements with data from other sources, such as INTERPOL (Chandra, Barkell, & Steffen, 2011). In most cases, the data is
released without further test of its validity. The average value for
the whole period is used, except when there is a specic mention.
Other data sources are detailed below.
An almost undisputed feature of illegal drugs is that they are
exchanged in separate markets, although some convergence is
found (UNODC, 2011). For example, a single region (the Andes) produces all the cocaine consumed in the world, while three regions
produce heroin (the Golden Crescent and Golden Triangle in Asia
and South/Central America) and cannabis is grown virtually everywhere. The number of sources is strongly associated with the
availability of drugs; it also seems plausible to expect different price
variations and determinants in different markets.
The rst step in this analysis was to build drug trade networks.
Two types of relational data were used to build separate trade
networks for plant-based drugs (cocaine, heroin, and cannabis)
at country-level. The rst data is a collection of seizures of signicant quantities of drugs that occurred between 1998 and
2007.1 This dataset provides detailed information on a large
number of cases, including origin and/or destination countries
(n = 20 527 dyads). When Spanish authorities seize drugs coming
from Venezuela and headed to France, they collect information on
a network of three nodes (Spain, Venezuela, and France) and two
relations (VenezuelaSpain, SpainFrance). The accumulation of

1
The dened thresholds of signicant quantities used by UNODC are as follows:
1 kg or more for cannabis and 100 g or more for cocaine and heroin.

237

such information allows the construction of a network that covers

the world.
However, seizures are reported to the UNODC on a voluntary basis; as a consequence, key players in the drug trade are
not included in the UNODC dataset. Observational data reported
by various international organizations involved in drug trafcking surveillance or control was therefore used to complete the
networks.2 Overall, most countries of the world are covered
(n = 173). More details on the construction of the drug trafcking
networks are available elsewhere (Boivin, 2011). Two softwares
were used to build and analyse the networks (UCINET and Pajek);
statistical analyses were conducted using SPSS 20.
Dependent variables
Fig. 1 illustrates investigated relations between dependent and
independent variables. As discussed above, the focus of this paper
is on the actual relations between countries rather than country
attributes. Relational measures are used to test slightly different
research questions (e.g., Is the price increase higher when two
countries are more distant?). The unit of analysis is thus the dyad,
which relates to a pair of countries (n = 2124).
Wholesale is dened as the price for a kilogram of drugs in
US dollars.3 Prices are estimated by experts (e.g., law enforcement
agents) from various national organizations and then reported to
the UNODC. When available the reported average value is used;
otherwise, the mean of the reported maximum and minimum price
is used as a proxy (Chandra et al., 2011). Consequently, wholesale prices are likely to be noisy and should be interpreted as
raw estimates of the price of drugs at higher levels of trafcking.
Researchers and analysts have nevertheless used the data because
they constitute the most systematic source of information on drug
prices in various countries (Caulkins, 2007; Chandra et al., 2011).
In order to compare prices from different countries, reported
prices use a common currency ($US). However, prices in US dollars
would be perfectly comparable only if money had the same value
everywhere in the world, which is certainly not the case (Gottschalk
& Smeeding, 1997). Farrell et al. (1996) expressed this idea when
they suggested that drugs were more expensive in Switzerland
simply because everything was more expensive there. Prices were
adjusted to capture the real value of a kilo of drugs, using the
following procedure:
adjusted pricex = pricex

GNP PPPx
median value of GNP PPP

where GNP PPP stands for a countrys gross nation product per
capita adjusted for purchasing power parity in 2002 (IMF, 2002).
Algeria had the median value, with $5900/capita, which means
that the wholesale price of drugs in Algeria is equal to its adjusted
value. Luxembourg had the highest factor of adjustment (10.19) and
Malawi had the lowest (0.09); if drug prices were the same worldwide, the adjusted value of drugs worth $1000 in Algeria would be
$10 190 in Luxembourg and $90 in Malawi.

2
A systematic review of information contained in 48 annual reports and country
overviews published by the UNODC, the Bureau of International Narcotics and Law
Enforcement Affairs (BINLEA), the International Narcotics Control Board (INCB) and the
European Monitoring Center for Drugs and Drug Addiction (EMCDDA) was conducted.
3
Prices are not adjusted for purity. Some authors (e.g. Caulkins, 2007) have
suggested that quality-adjusted prices should be analysed instead of raw prices
because price changes may manifest through quality changes rather than selling
price changes. However, the purity of drugs requires chemical tests that are not
routinely done in most countries of the world. Furthermore, there are a number of
important issues (e.g. selection bias) related to purity tests that are well-beyond
the scope of this paper. Finally, substantial quality variations have been observed at
retail-level (Caulkins et al., 2004; Darke, Topp, Kaye, & Hall, 2002), but the situation
is less clear at higher levels of drug trafcking.

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R. Boivin / International Journal of Drug Policy 25 (2014) 235243

Fig. 1. Dependent and independent variables.

Price markups were calculated by subtracting wholesale prices

in sending countries from wholesale prices in destination countries.
The result is analysed as the price or value increase incurred during
the exchange of drugs from one country to the other. Markups were
calculated for both reported and adjusted prices.
Independent variables
The nature of the dependent variables requires relational independent variables. However, many available country-level features
are attributes, i.e., characteristics of individual countries. Two types
of variables are used: attributive and relational.
Attributive variables
Consistent with the risks and prices model, two measures of
risk are used. The level of corruption in a country is estimated by
the Corruption Perception Index (CPI) developed by Transparency
International. Hundreds of experts are asked annually, by survey,
to estimate the level of corruption in a number of countries. While
the measure is certainly imperfect, it gives an order of magnitude
that allows comparing countries (Lambsdorff, 2007). It is also highly
correlated with other measures of corruption (Lederman, Layza, &
Soares, 2005; Van Dijk, 2008). The CPI is the average value of the
estimates, on a scale of 10 points; original values were inverted so
that high values mean high levels of corruption and vice versa. The
2008 edition of the CPI is used in this analysis.
The second measure of risk is the number of police agents per
1000 inhabitants taken from the UNODCs crime trends surveys.
The average value of editions 710 (19982006) is used.4 This measure has been used to estimate the risk of interception (Keefer,
Loayza, & Soares, 2008; Soares, 2004).
The third attributive variable is derived from social network
analyses. Some countries are used as transit between others. They
import a certain amount that is destined for exportation. It is
expected that, in those countries, drugs are more available, which
could reduce prices. Flow betweeness is our indicator of centrality in a network. High values of ow betweeness indicate that a
country is located on many paths between other countries; scores

4
Bahrain was excluded from the analysis because it had a value more than eight
times higher than the average.

are higher if nodes are located on every path between two countries (de Nooy, Mrvar, & Batagelj, 2005; Freeman, Borgatti, & White,
1991; White & Borgatti, 1994). Flow betweeness is different from
more traditional measures of centrality (e.g. betweeness centrality) because it includes every possible path, while other measures
are based solely on the shortest paths (Borgatti, 2005). Standardized values are used for cocaine and heroin. Because cannabis is
grown almost everywhere in the world it is almost impossible to
trace it back to source; consequently, ow betweeness could not
be calculated for cannabis.
An estimate of the number of potential consumers is also
included in the analysis, to test the proposition that large markets
are more competitive and prices could therefore be lower. It is given
by the product of active population size (age 1564) multiplied
by the prevalence of consumption reported in the 2009 edition
of the World Drug Report (UNODC, 2009). A measure of potential markets is also included to better account for transit positions.
For example, Spain is a well-known turntable for moving South
American cocaine into Europe. Spain itself is not a very large drug
market compared to more populated countries, but it allows drugs
to enter a multi-million user market. Therefore, Spain plays a crucial role: not only are drugs exported from Spain to a large number
of countries but those destination countries are populated with a
large number of drug users. Potential buyers is a measure of the
number of users in countries connected to destination countries.
In the case of heroin, the number of potential buyers (from other
countries) and potential consumers (from the country of destination) is highly correlated (r = 0.625; p < 0.001) and related to price
markups in a similar way. For cocaine, both measures of transit
are slightly less correlated (r = 0.473; p < 0.001) and have opposite
effects on price markups. Therefore, both measures were included
in models predicting cocaine price markups.
Relational variables
It has been recognized for decades that geographic distance is
an important determinant of the pattern of legal trade (Beckerman,
1956; Disdier & Head, 2008). The volume of trade between distant
countries is expected to be lower because of higher transport costs,
among other costs, and prices, of course, are expected to be higher
where costs are higher (Deardroff, 1998). Consequently, the geographic distance between countries was included in the models
predicting price markups.

R. Boivin / International Journal of Drug Policy 25 (2014) 235243

A key proposition of the world-system perspective is that prices

are related to the means of production of a country and the degree
of dependence with other countries. For example, peripheral countries that are not able to produce their own specialized commodities
(e.g., machinery) are forced to import them from more developed
countries at high prices. In legal markets, core/developed countries
are able to trade their commodities to peripheral/less developed
countries at high prices because the latter have limited access to
such commodities. It is hypothesized that the situation is reversed
in the case of illegal drugs. Cocaine and heroin are produced in a
handful of semi-peripheral and peripheral countries; core countries
necessarily import them from less developed countries. A simple
method was used to determine the global position of a country
in the world-economy. Mahutga (2006) estimated the position of
53 countries for the year 2000. We initially had information on
166 countries, which meant that using only his classication would
result in a great number of missing cases. However, Mahutgas classication is strongly correlated to a countrys total exports (in $US)
for the year 2000.5 Consequently, four categories of countries were
created: (1) core (annual exports of $100 000 M or more; n = 16),
(2) strong semi-periphery ($50100 000 M; n = 11), (3) weak semiperiphery ($1050 000$; n = 28), and (4) periphery ($10 000 M or
less; n = 111). We identied pairs of countries in which the trade
was directed towards the core of the world-economy; for example,
cases where drugs were traded from a peripheral country (category
4) to a strong semi-peripheral country (2), or from a weak semiperipheral country (3) to a core country (1). A dichotomous variable
indicates the direction of the trade (1 = towards core; 0 = same category or towards a more peripheral country).
Limitations
As in any macro-level study, all variables are very rough measures of the concepts of interest. Furthermore, most data on drugs
was collected through various annual surveys completed on a voluntary basis. Biases and errors (deliberate or not) are expected but
difcult to document. Also, there is an important number of missing cases, especially for price data. In general, developed countries
tend to provide more information than less developed countries,
but there are exceptions. It was possible to calculate markups only
when prices from both countries were available. Cases where prices
decreased in a pair (negative markups) were also excluded from the
analysis (17.8% of available markups). From all pairs of countries
identied (n = 2124), a total of 539 price markups and 536 adjusted
price markups are analysed.
In addition, many countries provide answers to the surveys submitted by the UNODC only irregularly, which creates another kind
of problem of missing data. For example, Canada did not provide
information on drug seizures for the year 2008 but did so for 2007.
Multiple years were analysed to reduce potential sample bias. The
UNODC tries to complement reported information through different methods (e.g., observations, reports from other international
organizations) but the data is certainly not ideal, a situation that
could explain its limited use in academic research (Caulkins, 2007).
However, the uniqueness of the data provided by the UNODC is
undisputed because it is a worldwide annual compilation of information.
It is noteworthy that the level of corruption is strongly correlated to the GNP PPP (r = 0.816; p < 0.001). Consequently, both
measures cannot be included in the same statistical models without

5
The non-parametric correlation between Mahutgas classication and exports
(in US$) is nearly perfect (Spearmans rho = 0.967; p < 0.001; n = 53). The core of
the world-economy is constituted by the top exporting countries in the world; the
less exports, the further from the core.

239

Table 1
Bivariate correlations between reported cocaine, heroin and cannabis wholesale
prices (US$), 19982007 (coefcient: Pearsons R).

Cocaine (ln)
Heroin (ln)
Cannabis (ln)
*
**

Cocaine (ln)

Heroin (ln)

Cannabis (ln)

0.28* (n = 69)
0.49** (n = 77)

0.46** (n = 81)

p < 0.05.
p < 0.01.

breaking a key assumption of OLS regression analysis (no multicollinearity). While economic contributions are acknowledged,
corruption was preferred over GNP because the paper is aimed at
providing a criminological and sociological explanation for price
variations rather than an economic analysis. However, these measures are expected to have opposite effects on drug prices: prices
should be higher in richer countries, while richer countries have
lower levels of perceived corruption. At the same time, the possibility of avoiding seizures and arrests by buying a way out is
a signicant source of savings. Lower risks mean lower compensation, which in turn should be associated with lower prices. Adjusted
prices are expected to better capture the effect of corruption on
the value of illegal drugs because the effect of relative wealth is
included directly in the dependent variable.
An important assumption should also be mentioned. In many
cases, the situation of a whole country and all the trafckers
operating within its borders is summarized by a single value.
Therefore, throughout the analysis, it is assumed that wholesale
prices are indicative of the value of drugs in a country after importation and before exportation to another country; it was not possible
to assess possible price increases within countries.6 For example,
according to the 2008 edition of the World Drug Report, a kilo of
cocaine sold for $31 580 in Canada (UNODC, 2008). During the same
period, the Royal Canadian Mounted Police the federal police
reported that a kilo of cocaine could be bought in British Columbia
(the far western part of Canada) for $20 000, while in Saskatchewan
(a more central province) it cost $70 000 (RCMP, 2007). The value
reported by the UNODC is somewhere in-between but not perfectly representative of the situation in either British Columbia or
Saskatchewan.
Results and discussion
Consistent with the observations of Farrell et al. (1996) there
is a statistically signicant and positive correlation between prices
for cocaine, heroin, and cannabis in a country; as a general rule,
when one drug is high-priced in a given country, other drugs are
also high-priced, suggesting that there is a set of common factors
that explain drug prices. However, the correlations are sufciently
low to require further examination. Consequently, analyses are provided for three types of plant-based illegal drugs: cocaine, heroin,
and cannabis (Table 1).
Preliminary analyses revealed that sending country features
were unrelated to price markups but that destination country features were. Thus corruption, police per capita, potential consumers,

6
Prices are expected to increase within a country for various reasons. Most
notably, there are costs associated with stocking drugs for future transactions
(Caulkins & Reuter, 1998). Drugs that are not moving can nevertheless be detected
and seized by local enforcement agencies; stocking drugs are thus likely to be associated with additional risk compensation, even if it is only a moderately risky activity.
Caulkins (1995) and Caulkins and Padman (1993) also demonstrated that distance
from the entry point is strongly related to drug prices within a country. Drugs tend
to be least expensive near their source and more expensive farther away. Local trafckers are also in business to make money and also pass their costs on to the next
buyers.

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R. Boivin / International Journal of Drug Policy 25 (2014) 235243

Table 2
Descriptive statistics, price markups.
Unadjusted prices (US$)

Adjusted values

Cocaine

Heroin

Cannabis

Cocaine

Heroin

Cannabis

N
Average
Median
Standard
deviation
Minimum

226
37 431
30 598
33 950

212
31 986
18 471
40 575

110
2756
1691
3570

214
185 660
172 578
166 070

220
144 622
74 220
204 250

111
12 149
4258
18 761

300
(Dom. Republic Haiti)

8
(Colombia Panama)

8
(Croatia Slovenia)

154
(Colombia Ecuador)

1
(Guinea Mali)

Maximum

145 688 (Peru

Australia)

217 964 (Pakistan

Australia)

16 984 (Ghana Japan)

679 100 (Peru

Australia)

134
(Afghanistan
Tajikistan)
1 025 456 (Pakistan
Australia)

97 017 (South
Africa Ireland)

Table 3
OLS regression models, price markups, 19982007 (coefcient: beta).
Cocaine

N pairs of countries
Destination: corruption
Destination: police per 1000 inhabitants
Destination/transit: ow betweeness
Destination/transit: potential buyers (ln)
Destination: number of users (ln)
Geographic distance (kms; ln)
Towards core
R squared

*
**

Heroin

Cannabis

Markups ($US)

Markups (adjusted
prices)

Markups ($US)

Markups (adjusted
prices)

Markups ($US)

Markups (adjusted
prices)

225
0.204**
0.007
0.235**
0.325**
0.101
0.518**
0.080
0.692**

213
0.450**
0.122**
0.220**
0.246**
0.024
0.292**
0.198**
0.758**

212
0.240**
0.153*
0.251**

0.085
0.407**
0.003
0.275**

220
0.660**
0.265**
0.112*

0.102
0.212**
0.104*
0.616**

102
0.379**
0.115

0.269**
0.452**
0.133
0.463**

103
0.731**
0.212**

0.063
0.135
0.087
0.616**

p < 0.1.
p < 0.05.
p < 0.01

potential buyers, and ow betweeness measures are included in

models predicting price markups, but for destination countries
only. In other words, if drugs are sent from Haiti to Canada, the
analysis considers Canadas features, but not Haitis; in the case
of drugs sent from Canada to Australia, Australias attributes are
considered, but not Canadas.7
As expected, cross-national analyses of cocaine, heroin, and
cannabis wholesale prices reveal that prices are higher in countries where costs and risks are higher (see Appendix 1). Subsequent
analyses explore a less obvious question, at least for the literature
on drug policy: why do prices increase between two countries?
Table 2 presents descriptive statistics for unadjusted and adjusted
price markups. As expected, average and median markups for
cocaine and heroin are higher than for cannabis, reecting their
higher value per kilo. However, relatively speaking, markups for
cannabis are considerably higher. The ratio between median unadjusted prices for cocaine (median markup = $US 30 598; median
price = $US 38 526) and heroin (median markup = $US 18 471;
median price = $US 23 985) are comparable (respectively 79.4%
and 77.0%), but markups are more than four times higher for
cannabis (median markup = $US 1691; median price = $US 477;
ratio = 354.2%). This may be explained by the recent reduction in
transnational cannabis trafcking, due in large part to the high risks
of detection and low expected prots (i.e., low mass density, distinctive smell, easy to grow, low retail prices). Cannabis trafcking

7
An anonymous reviewer pointed out that there could be an issue with the
assumption of statistical independence because countries could be repeated in the
dataset; for example, the fact that the U.S. appears four times as a receiving country
means that its features appear four times in the models. Consistent with the literature, supplementary analyses using robust errors and cross-random effect terms did
show differences in standard errors but the estimates remained roughly the same.

has become largely unnecessary as domestic cultivation increases

(Weisheit, 1992): countries still relying on cannabis imports therefore pay higher prices. Also, a specialized market for varieties of
cannabis has emerged: foreign consumers may be willing to pay
higher prices for Jamaican Ganja or Quebec Gold (Bouchard, Potter,
& Decorte, 2011).
Geographic distance appears to be crucial as well in understanding price markups. The lowest price increases for all drugs
are observed between countries that share ground borders, and
the highest price increases are observed between distant countries. Isolated countries also seem to pay higher prices: for example,
Australia is not only an island located at the far end of the world,
it is apparently never used as a transit to other destinations. There
is no clear distinction between the impact of distance and position on price markups: multivariate analyses are needed for further
discussion (Table 3).
It was argued that adjusted prices give a better estimation of the
real value of drugs in a country; only adjusted price markups are
interpreted below (models 2, 4, and 6). In all cases, results from
unadjusted price markups models are consistent with adjusted
price markups.
As expected, distance has a strong positive impact on price
markups. The more distance there is between two countries, the
higher the markup. A pragmatic interpretation of this result is
that, as in legal markets, transport costs increase with distance
(Deardroff, 1998). However, trafckers usually report that transport costs are negligible compared to revenues (Zatch, 2002a,
2002b). Another interpretation is that distance is associated with
risk compensation. Longer journeys involve higher risks of being
detected at some point; it takes more time to cover longer distance. Scholars have also suggested that distance is closely related
to means of transportation and that different means are associated
with specic risks (Farrell et al., 1996; Reuter & Kleiman, 1986).

R. Boivin / International Journal of Drug Policy 25 (2014) 235243

Both explanations are equally plausible, but further research is

needed.
Both aggregate measures of risk are signicantly related to
adjusted price markups. Contrary to cross-national comparisons
(Appendix 1), police per capita in destination countries has a
signicant positive effect on price increases between two countries, for all types of drugs. This result suggests that research
ndings based solely on cross-national comparisons should not
conclude that wholesale prices are not related to law enforcement
efforts. Furthermore, corruption is again a strong predictor of price
markups. Markups are lower when drugs are headed to corrupt
countries.
Two opposite effects are observed when drugs are sent to transit
countries in the cocaine and heroin markets. On the one hand, price
markups are lower if the destination is a transit to potentially large
markets for cocaine and if the destination is a transit for heroin. This
effect could be explained by the fact that supply greatly exceeds
demand in transit countries. An alternative explanation could be
that transit countries enjoy a discount for their role as brokers
in drug trafcking. Social network analyses have often found that
offenders acting as middlemen in their networks had higher earnings and lower risks of arrest (Bouchard & Ouellet, 2011; Morselli,
2009). Our results suggest that this idea of strategic positioning
could also be applied in macro-level analyses. On the other hand,
markups are greater when cocaine is exported to countries that are
positioned on many paths between other countries (ow betweeness). Recall that from 1998 to 2007, cocaine was only produced
in three South-American countries (UNODC, 2009). Other countries
had to import from one of these countries and the number of possible trafcking routes was limited. This was not the case for heroin,
which could be imported from three distant regions, with a larger
number of routes.
Surprisingly, the size of destination markets does not have a signicant impact on price markups. For example, other things being
equal, markups are similar whether drugs are exported towards
the United States (more than 300 million inhabitants) or Iceland
(approximately 300 000 inhabitants).
Finally, we nd support for the world-system hypothesis.
Cocaine and heroin price markups are more pronounced when the
trade is directed towards the core of the world-economy. Prices
increase more sharply when a country exports drugs to a betterpositioned country. Cocaine and heroin are scarce commodities
produced in a limited number of countries; cannabis is not. Many
countries could be self-sufcient in cannabis, in the sense that
imports are not necessary to insure drug supply within the country.
In general, countries are less dependent on others for their supply
in cannabis than cocaine and heroin.

Conclusion
Drug trafcking is an illegal activity that consists of multilateral
exchanges of prohibited goods between producers, distributors,
and consumers in a market-like context (Naylor, 2003). At the
global level, drug trafcking is best conceived as a series of relations
between countries. Network analysis naturally ts this relational
denition; knowledge about drug trafcking is gained from the
combination of cross-national and relational analyses.
This paper aimed to test propositions derived from two apparently unrelated theoretical perspectives. The risks and prices model
(Caulkins & Reuter, 2010; Reuter & Kleiman, 1986) states that law
enforcement imposes additional costs on trafckers that are passed
on to the next buyers of the drugs in the form of higher prices. The
model predicts that prices will be higher where costs are higher.
Most costs are due to risk compensation for possible prison sentences and violence (Caulkins & Reuter, 1998).

241

The world-system perspective (Wallerstein, 1974) suggests that

the world-economy is based on unequal economic and political
relations that result in a hierarchy of countries. In legal markets,
countries forming the core of the system collect more wealth at the
expense of others, mainly because they have extensive means of
production. Core countries do not rely on others for their supply
of various commodities, in contrast to peripheral and, to a lesser
extent, semi-peripheral countries, which are more or less dependent on others for their supply of specialized and transformed
commodities. It is argued that the situation is reversed for illegal drugs: due to various contextual factors (e.g., tougher drug law
enforcement, temperate climate), industrialized countries are not
able to produce enough drugs to meet national demand and are
forced to import from less developed countries. In the cases of
cocaine and heroin, the whole supply is based on imports. Because
the relation of dependence is reversed for cocaine and heroin, prices
are expected to increase more sharply when the trade is directed
towards the core of the world-economy.
The results presented above support both perspectives. First,
evidence is found that the level of corruption and the ratio of
police per capita are related to price markups in drug exchanges
between two countries. Cocaine, heroin, and cannabis are more
expensive in stricter countries, and markups are sharper when
drugs are exported to countries in which the risks of detection and seizure are higher. Second, price markups for cocaine
and heroin only are more pronounced when drugs are exported
to countries that are better positioned in the legitimate worldeconomy. Higher price markups indicate unequal exchanges: in
legal markets, when countries come together to exchange products in the world market, the exchange results in a net transfer of
value towards the core (Chase-Dunn, 1989; Chase-Dunn & Grimes,
1995). In this case, there is evidence of unequal exchanges in
global cocaine and heroin markets, but in the opposite direction.
Markups are to the advantage of more peripheral countries. For
cocaine and heroin, the trade network appears to be turned upsidedown.
The model presented may provide unexpected insights into new
drug markets. The recent emergence of synthetic drugs and the
widespread domestic production of cannabis certainly question
the idea that the core depends on the periphery for its supply in
drugs; a number of core countries are now self-sufcient or even
exporters of illegal drugs (UNODC, 2011). Current explanations suggest that domestic production may be explained, among others,
by increased demand, technological innovations (i.e. hydroponics), precursor availability, social tolerance towards consumption,
inefcient law enforcement, etc. According to the world-system
perspective, the emergence of domestic production should rather
be seen as a mean to increase competitiveness and reduce dependency. The capacity to produce popular commodities is necessary
to maintain a favourable position in the world-economy, regardless
of the legal status of commodities.
A more general conclusion is that global drug markets are structured, but not necessarily because of a vast criminal conspiracy.
The structure imposes itself as a series of logical, rational, but independent choices motivated by a common appetite for prot and
risk management (Benson & Decker, 2010; Williams, 1998). Illegal drug prices and price markups are explained by local contexts
(Hobbs, 1998) but also by global features. On one hand, drugs are
more expensive where additional costs are imposed on trafckers
by law enforcement. On the other hand, distance is also a strong predictor of price markups, simply because long distance trade costs
more. The position and role of a country in global drug markets
are also closely associated with the value of drugs in that country.
Retail markets are embedded in and inuenced by larger trade networks and a better understanding of global drug markets improves
knowledge about local contexts.

242

R. Boivin / International Journal of Drug Policy 25 (2014) 235243

Table A1
OLS regression models, wholesale prices, 19982007 (coefcient: beta).
Cocaine

N countries
Corruption
Police per 1000 inhabitants
Geodesic distance from source
Networks: ow betweeness
Networks: import
Networks: export
America
Africa
Europe
R squared

*
**

Heroin

Cannabis

Prices ($US; ln)

Adjusted prices (ln)

Prices ($US; ln)

Adjusted prices (ln)

Prices ($US; ln)

Adjusted prices (ln)

58
0.347**
0.011
0.508**
0.229*

0.639**

58
0.684**
0.095
0.300**
0.140

0.743**

82
0.317**
0.192*
0.118
0.318**

0.173

0.389**

82
0.670**
0.198**
0.100
0.214**

0.178*

0.718**

104
0.402**
0.064

0.112
0.191**

0.234**
0.310**
0.716**

104
0.514**
0.079

0.110*
0.160**

0.229**
0.268**
0.817**

p < 0.1.
p < 0.05.
p < 0.01.

Acknowledgements
This research was partly funded by a grant from the Social Sciences and Humanities Research Council (Government of Canada).
The author would like to thank Pierre Tremblay and Carlo Morselli
for their support, comments and suggestions throughout the
research. The author would also like to acknowledge the contribution of anonymous reviewers.
Conict of interest statement
No conict of interest is declared.
Appendix A.
Table A1.
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