Methods - Data Sources

This paper explores potential ways to develop experimental estimates of the value of U.S. imports of illegal drugs. It builds on the initial exploration of this topic by the Bureau of Economic Analysis (BEA) in Soloveichik (2019), which presents experimental estimates of U.S. domestic consumption of illegal drugs and of import of illegal drugs into the United States. In this paper, I extend Soloveichik’s research by exploring the feasibility of developing estimates of imports of methamphetamines and marijuana using seizure data, and I evaluate the extent to which source data allow us to estimate heroin and cocaine imports by geography. International guidelines for national economic accounts (the System of National Accounts 2008, or SNA) and international economic accounts (the Balance of Payments and International Investment Position Manual, sixth edition) explicitly recommend that some illegal market activity should be included in measured output. Soloveichik suggests that illegal drugs comprise the largest share of imports of this activity for the United States and would have added $111 billion to U.S. GDP in 2017.

The internationally agreed guidelines for national economic accounts, System of National Accounts 2008 (hereafter referred to as SNA 2008) (United Nations Statistics Division 2008), explicitly recommend that illegal market activity should be included in the measured economy. This recommendation has not yet been implemented by the U.S. Bureau of Economic Analysis (BEA) because of challenges inherent in identifying suitable source data and differences in conceptual traditions. This paper explores how tracking illegal activity in the U.S. national economic accounts might impact nominal Gross Domestic Product (GDP), real GDP, productivity, and other economic statistics. Nominal GDP rises in 2017 by more than 1 percent when illegal activity is tracked in the U.S. National Income and Product Accounts (NIPAs). By category, illegal drugs add $108 billion to measured nominal GDP in 2017, illegal prostitution adds $10 billion, illegal gambling adds $4 billion, and theft from businesses adds $109 billion. Real GDP and productivity growth also change. Real illegal output grew faster than overall GDP during the 1970s and post–2008. As a result, tracking illegal activity ameliorates both the 1970s economic slowdown and the post–2008 economic slowdown considerably.