Reducing crime could significantly boost investment, productivity, and GDP growth in Latin America and the Caribbean

IMF Blog, December 18, 2023

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The region accounts for nearly half of the world's intentional homicide victims, despite representing just over 8 percent of the global population.
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.
Central America and the Caribbean have experienced annual increases in homicide rates of about 4 percent in the last two decades.
A 30 percent increase in homicide rates (equivalent to a historical 1 standard deviation) is estimated to reduce growth by 0.14 percentage points in Latin America.
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.
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.

Crime hampers capital accumulation, possibly deterring investors who fear theft and violence.
Crime decreases productivity, likely diverting resources toward less productive investments such as home security.
The analysis leverages data on criminal deportations from the US to help identify causal effects of crime on economic activity.

Governments in Latin America are already allocating a considerable share of resources to public order and safety.
Countries with higher crime rates tend to have higher public-order spending; for example, El Salvador and Jamaica already spend more than 2 percent of their GDP on this matter.
Large security budgets suggest that more effective strategies could free up significant resources for other spending priorities.

The IADB’s Security and Justice Evidence-based Platform provides scientific evidence on effectiveness of security and justice solutions.
The platform highlights that there is little evidence that vehicular license plate recognition technologies reduce transportation-related violence.
Alcohol tax and price policies are found to effectively reduce violence in some cases.
Prioritizing more effective crime-fighting strategies would enhance public safety and improve the region’s economic potential.
Collaboration among policymakers, international financing institutions, academia, non-governmental organizations, and the private sector is important to address crime as an obstacle to growth.

Rafael Machado Parente and Rodrigo Valdés, December 18, 2023