Title

Study on Crime and Investment in Latin America and the Caribbean

Document Type

Article

Publication Date

9-25-2014

Publication Title

United States Agency for International Development (USAID)

Abstract

Investment is a key determinant of economic growth. This relationship underpins the growth diagnostic and constraints analysis methodology used by the Millennium Challenge Corporation (MCC) and United States Government Partnership for Growth initiative with the purpose of identifying the binding constraints to growth in a given country. Recent growth diagnostics undertaken for El Salvador (2011), Guatemala (2013), and Honduras (2013) find crime and citizen insecurity to be binding constraints to growth and investment in those countries (Acevedo et al. 2011; World Bank, 2012). The approaches taken in these growth diagnostic analyses are based on indirect proxies and shadow prices of the crime-investment relationship. Further empirical analyses are required to determine the nature of the relationship between crime and investment for Latin America and Caribbean (LAC) countries. Quantitative analyses of the crime-investment relationship are scant, and most of the work on this relationship focuses on the impact of crime on Foreign Direct Investment (FDI). There is much less work on the drivers of domestic investment. This study provides new evidence on the crime-investment link in the LAC context with the purpose of informing the design and implementation of development activities in the region.