On the Determinants of Opium Consumption : An Empirical Analysis of Historical Data

Consumption of drugs is a major problem in modern society. Yet, not much is known about it from an economic point of view. The illegal nature of drug use makes it difficult to collect reliable data for empirical analysis. The current paper avoids this problem by using historical data that are collected under a government regime of legal drug use. In the early twentieth century in the Dutch East Indies (present day Indonesia) there was a government monopoly on opium. We use data from 1930 administrative files on this monopoly to study regional differences in opium consumption. From the nature of these differences we make inferences about the determinants of opium consumption. We find that regional differences in opium policy, in population density and in composition of the Chinese part of the population are the major determinants of regional differences in opium consumption