Identifying the impact of the business cycle on drug-related harms in European countries

Abstract

BackgroundThe evidence resulting from the analysis of the association between economic fluctuations and their impact on the substance use is mixed and inconclusive. Effects can be pro-cyclical (drug-related harms are predicted to rise when economic conditions improve), counter-cyclical (drug-related harms are predicted to rise in bad economic times) or unrelated to business cycle conditions as different transmission mechanisms could operate simultaneously. MethodsThe main aim of this study is to assess, from a macroeconomic perspective, the impact of economic cycles on illegal drug-related harms in European countries over the 2000-2020 period. To this end, the regime-dependent relationship between drug-related harm, proxied by unemployment, and the business cycle, proxied by overdose deaths will be identified. Applying a time dynamic linear analysis, within the framework of threshold panel data models, structural-breaks will also be tested. ResultsThe relationship between economic cycles (proxied by unemployment) and drug-related harms (proxied by overdose deaths) is negative, and therefore found to be pro-cyclical. One percentage point in the country unemployment rate is predicted to reduce the overdose death rate by a statistically significant percentage of 2.42. A counter-cyclical component was identified during the 2008 economic recession. The threshold model captures two effects: when unemployment rates are lower than the estimated thresholds, ranging from 3.92% to 4.12%, drug-related harms and unemployment have a pro-cyclical relationship. However, when unemployment rates are higher than this threshold, this relationship becomes counter-cyclical. ConclusionsThe relationship between economic cycles and drug-related harms is pro-cyclical. However, in situations of economic downturns, a counter-cyclical effect is detected, as identified during the 2008 economic recession.