Crime and violence have long been a top-of-mind concern for households
across Latin America and the Caribbean. The region accounts for nearly half
of the world’s intentional homicide victims, despite representing just over
8 percent of the global population, United Nations data show.
The average homicide rate in the region is 10 times that of other emerging
markets and developing economies and twice as high as sub-Saharan Africa.
Within the region, Central America stands out as the most violent
subregion. Insecurity has also worsened over time, especially in some parts
of the region. For example, Central America and the Caribbean have
experienced annual increases in homicide rates of about 4 percent in the
last two decades.
Crime directly affects the lives of millions of people and imposes large
social costs. Because there is a delicate interplay between economic
activity and crime, determining causal effects is not easy. More economic
activity will reduce crime, but less crime would, in turn, boost economic
activity. Another factor, such as the strength of rule of law, will also
affect both.
Our
recent study shows that increases in homicide rates significantly reduce economic
growth. In Latin America, a 30 percent increase in homicide rates
(equivalent to a historical 1 standard deviation) is estimated to reduce
growth by 0.14 percentage points. We build on previous
IMF work on Central America, Panama, and the Dominican Republic using data on
criminal deportations from the US to tease out the causal effect of crime
on economic activity.
Our study highlights the different channels through which insecurity
affects economic growth. Estimates show that crime hampers capital
accumulation, by possibly deterring investors who fear theft and violence,
and decreases productivity, as it likely diverts resources toward less
productive investments such as home security.
The benefits of reducing violence can be substantial. According to the
study, bringing the crime level in Latin America down to the world average
would increase the region’s annual economic growth by 0.5 percentage
points, about a third of Latin America’s growth between 2017-19. Moreover,
confronting insecurity where it is most prevalent seems to have the largest
payoffs. For example, fully closing the crime gap in countries with the
highest homicide rates could elevate their gross domestic product growth by
around 0.8 percentage points.
Smarter spending in security
Governments in Latin America are already allocating a considerable share of
their resources to public order and safety. Not surprisingly, higher
spending occurs in countries with higher crime rates—countries like El
Salvador and Jamaica already spend more than 2 percent of their GDP on this
matter.
While this substantial spending may be necessary to mitigate and deter
crime, it also suggests that implementing more effective strategies could
free up significant resources for other spending priorities. The IADB’s
Security and Justice Evidence-based Platform is a valuable resource for
scientific evidence on the effectiveness of existing security and justice
solutions. The platform highlights, for instance, that there is little
evidence that vehicular license plate recognition technologies reduce
transportation-related violence, whereas alcohol tax and price policies are
found to effectively reduce violence in some cases.
Crime is an economic and social issue with far-reaching consequences and a
variety of intertwined roots. If governments in the region were able to
prioritize more effective crime-fighting strategies, these would not only
enhance public safety but also improve the region’s economic potential.
This underscores the importance of collaboration between policymakers,
international financing institutions, academia, non-governmental
organizations, and the private sector to find ways to deal with this
important obstacle to growth in the region.
Source link : https://www.imf.org/en/Blogs/Articles/2023/12/18/latin-america-can-boost-economic-growth-by-reducing-crime
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Publish date : 2023-12-18 03:00:00
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