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Foreign direct investment and industry response to organized crime: The Mexican case

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  • Ashby, Nathan J.
  • Ramos, Miguel A.

Abstract

Organized crime is a disincentive for investment and business activity. We use murders as a proxy for presence of regional organized crime and study the relation between direct foreign investment and organized crime for different industries in Mexico. Our contribution is the focus on sectoral differences. The data is for net foreign direct investment from 116 countries into the 32 Mexican states from 2004 to 2010. Imputing causality, we find that organized crime deters foreign investment in financial services, commerce, and agriculture, but not oil and mining sectors for which we find increased crime associated with increased investment. There is no effect of organized crime on foreign investment in manufacturing.

Suggested Citation

  • Ashby, Nathan J. & Ramos, Miguel A., 2013. "Foreign direct investment and industry response to organized crime: The Mexican case," European Journal of Political Economy, Elsevier, vol. 30(C), pages 80-91.
    • Handle: RePEc:eee:poleco:v:30:y:2013:i:c:p:80-91
    DOI: 10.1016/j.ejpoleco.2013.01.006
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    2. Jose Ramon Morales Arilla, 2019. "The Impact of the Mexican Drug War on Trade," Growth Lab Working Papers 132, Harvard's Growth Lab.
    3. McCloud, Nadine & Delgado, Michael S. & Holmes, Chanit'a, 2018. "Does a stronger system of law and order constrain the effects of foreign direct investment on government size?," European Journal of Political Economy, Elsevier, vol. 55(C), pages 258-283.
    4. René Cabral & André Varella Mollick & Eduardo Saucedo, 2016. "Violence in Mexico and its effects on labor productivity," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(2), pages 317-339, March.
    5. Hale Utar, 2018. "Firms and Labor in Times of Violence: Evidence from the Mexican Drug War," CESifo Working Paper Series 7345, CESifo.
    6. Germà Bel & Maximilian Holst, 2018. "Assessing the effects of the Mexican Drug War on economic growth: An empirical analysis," Southern Economic Journal, John Wiley & Sons, vol. 85(1), pages 276-303, July.
    7. Pedro Niño & Roberto Coronado & Thomas Fullerton & Adam Walke, 2015. "Cross-border homicide impacts on economic activity in El Paso," Empirical Economics, Springer, vol. 49(4), pages 1543-1559, December.
    8. Folorunsho M. Ajide & Olasupo I. Bankefa & Rufus A. Ajisafe, 2018. "Criminal Activities and Firms’ Market Power: Evidence from Nigerian Banking Industry," Global Business Review, International Management Institute, vol. 19(5), pages 1207-1223, October.
    9. Hatem Adela & Wadeema Aldhaheri, 2024. "The Impact of Crime against a Person on Domestic Investment in Dubai," JRFM, MDPI, vol. 17(2), pages 1-17, February.
    10. Gorrín, Jesús & Morales-Arilla, José & Ricca, Bernardo, 2023. "Export side effects of wars on organized crime: The case of Mexico," Journal of International Economics, Elsevier, vol. 144(C).
    11. Jose Ramon Morales Arilla, 2019. "The Impact of the Mexican Drug War on Trade," CID Working Papers 109a, Center for International Development at Harvard University.
    12. Forgione, Antonio Fabio & Migliardo, Carlo, 2023. "Mafia risk perception: Evaluating the effect of organized crime on firm technical efficiency and investment proclivity," Socio-Economic Planning Sciences, Elsevier, vol. 88(C).
    13. Lee, Hyoungjin & Park, Junmin & Chung, Chris Changwha, 2022. "CEO compensation, governance structure, and foreign direct investment in conflict-prone countries," International Business Review, Elsevier, vol. 31(6).
    14. Muhammad Mukhlis Afriyanto, 2017. "The impact of crime on foreign direct investment," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 9(2), pages 189-198, April.
    15. René Cabral & André Varella Mollick & Eduardo Saucedo, 2019. "Foreign Direct Investment In Mexico, Crime, And Economic Forces," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 68-85, January.
    16. Catalina Gómez Toro, 2014. "La relación virtuosa de la seguridad y la inversión extranjera directa en Colombia (1994-2013)," Ensayos de Política Económica, Departamento de Investigación Francisco Valsecchi, Facultad de Ciencias Económicas, Pontificia Universidad Católica Argentina., vol. 2(2), pages 62-87, Octubre.
    17. Sauls, Laura Aileen & Dest, Anthony & McSweeney, Kendra, 2022. "Challenging conventional wisdom on illicit economies and rural development in Latin America," World Development, Elsevier, vol. 158(C).
    18. Carlos A. Carrasco & Mario Durán-Bustamante, 2018. "War on drugs, violence, and the share of low-income workers in Mexico," Economics Bulletin, AccessEcon, vol. 38(2), pages 696-702.
    19. Germá-Bel & Maximilian Holst, 2016. "“A two-Sided coin: Disentangling the economic effects of the 'War on drugs' in Mexico”," IREA Working Papers 201611, University of Barcelona, Research Institute of Applied Economics, revised Apr 2016.
    20. Godwin Okafor & Obiajulu Ede, 2023. "Kidnapping rate and capital flight: Empirical evidence from developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2590-2606, July.
    21. Oliver E. Ogbonna & Jonathan E. Ogbuabor & Charles O. Manasseh & Davidmac O. Ekeocha, 2022. "Global uncertainty, economic governance institutions and foreign direct investment inflow in Africa," Economic Change and Restructuring, Springer, vol. 55(4), pages 2111-2136, November.
    22. Cabral Torres René & Mollick André V. & Saucedo Eduardo, 2018. "The Impact of Crime and Other Economic Forces on Mexico's Foreign Direct Investment Inflows," Working Papers 2018-24, Banco de México.
    23. Cesar Gustavo Iriarte Rivas, 2018. "Three essays on the Mexican labour market," Economics PhD Theses 0418, Department of Economics, University of Sussex Business School.
    24. Blanco, Luisa R., 2013. "The impact of crime on trust in institutions in Mexico," European Journal of Political Economy, Elsevier, vol. 32(C), pages 38-55.

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    More about this item

    Keywords

    Organized crime; Foreign direct investment; Mexico;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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