Higher Growth. Lower Crime?

IMF Blog, February 24, 2020

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Central America remains one of the world’s most violent regions, where about 4.5 percent of the world’s homicides occur. The region has only about 0.5 percent of the world's population.
Homicide rates have fallen since 2015, largely thanks to increased security efforts by the region’s governments:
- El Salvador: 108.6 to 36 (per 100,000 inhabitants, 2019)
- Guatemala: 29.7 to 21.5 (per 100,000 inhabitants, 2019)
- Honduras: 63.8 to 41.5 (per 100,000 inhabitants, 2019)
Economic activity increased in the “Northern Triangle” countries of El Salvador, Guatemala, and Honduras during the same period.

Evidence from a recent IMF staff paper and the Chart of the Week indicates a measurable negative relationship between output and crime in the Northern Triangle.
Honduras (2016): a 1 percent increase in observed GDP per capita, driven by higher labor productivity, would lower crime by about 0.5 percent.
El Salvador: a 1 percent increase in output decreases crime by ⅔ percent.
Guatemala: the effect of a 1 percent increase in output on crime is the same as in Honduras (about 0.5 percent).
The chart suggests that the positive effects of better economic activity on crime are similar across a broad set of medium-crime levels.

As productivity and economic activity go up, overall incomes rise and individuals face stronger incentives to engage in legal activity (for example, paid work in the manufacturing sector or owning a small business).
Criminal activity becomes less attractive when legitimate employment opportunities and stable wages increase.
Current criminals are less likely to commit high-paying illegal activities, such as extortion, when legal job opportunities provide job security and stable wages.
Positive spillovers:
- More productive workers and lower security costs increase firm profits.
- Higher firm profitability encourages new firms to enter the market or existing firms to expand, boosting vacancies and employment.

The downside: economic instability or a growth slowdown are detrimental for the security situation.
Widespread poverty, lack of economic opportunities, and perceived corruption make criminal activity a viable option for some, contributing to high crime in Northern Triangle countries.

Tough-on-crime policies (for example, “Mano Dura” in El Salvador) often misfire.
Policies aimed at reintegration of convicts into the productive economy (such as in the manufacturing or services sectors) appear more beneficial.
Broader growth-promoting policies that are key to strengthening and sustaining reduction in crime include:
- Better infrastructure
- Lower barriers to entry for new firms
- More-efficient tax systems

Dmitry Plotnikov, February 24, 2020 — IMF Chart of the Week blog post