Violent crime and insecurity remain major barriers to prosperity in Latin America and the Caribbean (LAC). With just 8 percent of the global population, LAC accounts for a third of the world’s homicides. Building on the existing literature, this paper aims to support economic policymakers and development partners by exploring the interplay between insecurity and macroeconomic outcomes, with emphasis on the relationship between violent crime and growth, the business climate, and public finances. The analysis shows that national-level crime indicators mask huge internal disparities, and that municipalities with 10 percent higher homicide rates have lower economic activity by around 4 percent. The paper develops an innovative measure of insecurity—the share of crime-related news—and shows its association with lower industrial production. Using firm-level data, it also estimates that the direct costs of crime, for firms, are around 7 percent of annual sales, and these are much higher when gangs and drug-trafficking organizations are present. Violent crime rises with macroeconomic instability, inequality, and governance problems. Using a large cross-country panel, the analysis finds that homicides increase when a country is affected by negative growth, high inflation, or a worsening of inequality. Victimization surveys indicate that where populations are concerned with the rule of law—impunity and police corruption—only one in five victims file their case with the police. Lack of trust and crime can be mutually reinforcing. Finally, the paper documents the fiscal burden of security provision and finds that spending tends to be inelastic to crime and that spending efficiency could be improved. The paper concludes with policy lessons and areas for additional collaboration between national authorities, international partners, and key stakeholders. These focus on data collection and analysis, economic policies that may address the root causes and manifestations of crime, strengthening rule of law institutions, and intensifying regional exchanges on security and public finance issues.
Authors
Paul M Bisca, Vu Chau, Paolo Dudine, Raphael A Espinoza, Jean-Marc Fournier, Pierre Guérin, Niels-Jakob H Hansen, Jorge Salas
- DOI
- https://doi.org/10.5089/9798400288470.087
- ISBN
- 9798400288470
- ISSN
- 2616-5333
- Issue
- 009
- Pages
- 60
- Published in
- United States of America
- StockNumber
- VCILACEA
- Volume
- 2024
Table of Contents
- Prepared by Paul M. Bisca Vu Chau Paolo Dudine Raphael Espinoza Jean-Marc Fournier Pierre Guérin Niels-Jakob Hansen and Jorge Salas Under the guidance of Luis Cubeddu and Rodrigo Valdés 1
- DP2024009 1
- Prepared by Paul M. Bisca Vu Chau Paolo Dudine Raphael Espinoza lead Jean-Marc Fournier Pierre Guérin Niels-Jakob Hansen and Jorge Salas Under the guidance of Luis Cubeddu and Rodrigo Valdés 2
- Contents 4
- Executive Summary 6
- Acronyms and Abbreviations 8
- 1. Introduction 10
- 2. Insecurity Challenges in Latin America and the Caribbean 11
- A. Drivers and Economic Ramifications of Crime 13
- 3. The Geography of Crime Latin America and the Caribbeans Pockets of Fragility 17
- A. High Within-Country Variations in Crime 17
- B. Features of Frontline Municipalities 17
- C. Crime and Local Economic Activity 20
- 4. Alternative Higher-Frequency Measure of Crime 22
- A. Challenges with Measuring Crime 22
- B. A News-Based Crime Indicator 22
- C. Crime News and Industrial Production 24
- 5. Revisiting the Economic Institutional and External Drivers of Crime 26
- A. Internal Drivers Macroeconomic Outcomes and the Quality of Governance 26
- B. External Spillovers 28
- 6. The Impact of Insecurity on Firms 29
- A. How Crime and Violence Stifle the Private Sector in LAC 29
- B. The Economic Costs of Organized Crime The Case of Mexico 31
- 7. Fiscal Implications of Security Spending 36
- A. Security Spending Patterns 36
- B. The Relationship between Security Spending Police Forces and Violent Crime 38
- 8. Policy Lessons 43
- Annex I. Drivers of Crime and Violence in Latin America and the Caribbean 45
- Annex 2. Drivers of Crime A Macro-Panel Approach 47
- A. Macro-Panel Data 47
- B. Cross-Country Regression 50
- C. Victimization Survey 50
- References 52
