High crime stifles Latin American economies

Rampant violent crime is not only robbing Latin America of significant private investment, but in some cases, it is stealing up to 8 per cent from national economic growth, according to economists and World Bank officials.

Growth rates for the economy, along with those for income and private investment, would be higher, they say, if it were not for widespread insecurity about crime. Instead of simply producing their products, companies feel driven to spend resources on preventing violence and protecting employees and property. Often, though, there is good reason:

In Brazil, if the country's homicide rate in the early 1990's had been as low as Costa Rica's, which has one of the lowest in the region at one-sixth Brazil's rate, per capita income would have been about $200 higher and the gross domestic product 3.2 to 8.4 per cent higher in the late 1990's, according to a World Bank report issued to the Brazilian government in September.

Across Latin America, the economic cost of crime is similarly pronounced, equal to 14.2 per cent of the region's gross domestic product (GDP), according to a 1999 Inter-American Development Bank report, the most recent study of the region.

"You have money spent on guarding stuff rather than making stuff," said Michael Hood, Latin America economist for Barclays Capital. "There's a large population standing around in blue blazers rather than engaged in more productive activities."

Crime also hurts growth by lowering productivity, high school graduation rates and labour participation, according to a report released last year by the development bank. Social problems like high youth unemployment and deteriorated urban infrastructure, in turn, encourage more crime, the study said.

"Crime scares off domestic and foreign investment," said Andrew Morrison, World Bank economist and a co-author of the Brazil report.

Source: Jens Erik Gould, High Crime Stifles Latin Economies, New York Times, October 17, 2006.

For text (subscription required): http://www.nytimes.com/2006/10/17/business/worldbusiness/17crime.html

For more on Crime: http://www.ncpa.org/sub/dpd/index.php?Article_Category=14

FMF Policy Bulletin/ 24 October 2006