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The Price of Crime: How Crime Affects Private Investment in South America

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  • Rafael Alexis Acevedo Rueda
  • Mónica Isabel García-Pérez

Abstract

This paper analyzes the impact of crime on private investment in eleven South American countries. We adapt a model proposed by Acevedo and Mora (2008) to include crime, understood as the insecurity due to violence and criminal and illegal actions. We find that crime affects private investment in two levels. First, an increase in the expected cost resulting from crime diminishes private investment. Second, the variance of crime decreases the amount of investment. Using data from the Penn World Tables and the OAS Hemispheric Security Observatory, we build a panel data set for the South American countries from 2000 to 2010 and quantify our model using a unique index of crime that accounts for average and variation effects within each country. After accounting for time invariant unobservable heterogeneity and using a fixed effect panel data approach, we find that crime has a negative effect on increases in private investment. These results are consistent after several robustness checks.

Suggested Citation

  • Rafael Alexis Acevedo Rueda & Mónica Isabel García-Pérez, 2015. "The Price of Crime: How Crime Affects Private Investment in South America," Revista Economía y Región, Universidad Tecnológica de Bolívar, vol. 9(2), pages 47-74, December.
    • Handle: RePEc:col:000411:014190
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    References listed on IDEAS

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    More about this item

    Keywords

    Crime; insecurity; investment; development; South America;
    All these keywords.

    JEL classification:

    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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