What is the economic impact of the illicit market?

What is the Wider Economic Impact Beyond Lost Profit and Revenue?

In addition to estimating lost government revenue attributable directly to decreases in sales by legitimate industry, it is also possible to calculate further losses by combining forecasted changes in the quantities of duty-paid alcohol (see What is the Profit Loss for Legitimate Producers?) with economic impact studies of the legal alcohol market. These typically demonstrate the employment, gross value added contribution to GDP, and tax receipts that flow from the industry. In this context, losses in these areas may variously include, depending on the country, the growing of agricultural raw materials, as well as the manufacture of alcohol or other alcohol products and their distribution and retailing.

A number of economic impact studies have been conducted on the alcohol industry (see Secondary Data Sources - Economic Impact Studies). Where existing economic impact studies are not available, national statistical agencies in most countries publish data on the production of alcohol by brewers, distillers, and wine producers. These statistics are likely to capture estimates of employment, the value of turnover, and the gross value added contribution to GDP. Where there are large agricultural raw material sectors (e.g., grape growing), this also may be recorded by the statistical agencies.

Data are also likely to be available from national statistical agencies on the size of the on-trade and off-trade. However, this still requires a method to estimate the share of on-trade and off-trade economic activity attributable to the sale of alcohol. This is often estimated by calculating the share of the particular distribution channel’s turnover that is due to the product’s sale, then multiplying this by the agencies’ published data on employment, gross value added, etc. in the most relevant industrial sector within the retail and hospitality industry.

Alcohol trade bodies often also provide a rich source of statistics on the growing and production stage of the industry.  

Economic impact studies may also examine the alcohol industry’s contribution to the remainder of the economy. This contribution is composed of two types of expenditures that stimulate activity elsewhere:

• the alcohol industry’s procurement of inputs of goods and services from domestic suppliers; and
• wages paid to industry staff and to the staff of firms in its direct supply chain, a portion of which is spent by the recipients, in turn generating economic activity at retail and leisure outlets and in domestic supply chains.

Both are possible to calculate using multipliers, which quantify the further economic activity associated with additional wage income and supply chain purchases. Some national statistical agencies publish multipliers; others only publish input-output tables from which multipliers can be derived.^[1]

The multipliers for both supply chain and wage consumption are then typically combined with other data from national statistical offices to calculate the three metrics economic impact analyses present:

• gross value added;
• employment; and
• tax receipts.

It should be noted that this approach does not quantify economic activity that the unrecorded market stimulates in other sectors, such as transport and travel activity emanating from cross-border shopping.

[1] Miller and Blair (2009) provide a comprehensive introduction to input‒output tables and the construction of multipliers.