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Adolescence constitutes a period of risk for drug use and drug use disorders. Previous research, largely focused on individual risk factors, has failed to include neighborhood structure in the study of determinants of youth drug use or abuse. A cohort of 76,693 adolescents ages 13–15 from 586 urban neighborhoods in Sweden were followed up for 12 years, from age 16 to age 28. Multilevel modeling was used to analyze neighborhood variations in hospital admissions due to illicit drug use or abuse. We found a variation of 8% by neighborhood economic status and the risk of being admitted to hospital increased 73% in low-compared to high-income neighborhoods. Our results suggest that neighborhood of residence in adolescence plays a significant role in predicting future health-related behaviors and that the need for drug abuse interventions at a neighborhood level is compelling.