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High Crime Rates Limit Growth Of Latin American Economies

By Jens Erik Gould


Years of rampant violent crime are not only robbing Latin America of significant private investment but in some cases stealing up to 8 percent from national economic growth, economists and World Bank officials say.

Growth rates for the economy, along with those for income and private investment, would be higher, they say, if it were not for widespread insecurity about crime. Instead of simply producing their products, companies feel driven to spend on preventing violence and protecting employees and property. Often there is good reason.

“Our business suffers a lot from crime,” said Dario Vivas, president of the Venezuelan waste management company Cotecnica, a subsidiary of Veolia Environnement of France. “Employees cash their salary checks but then arrive home with nothing because thieves have robbed them.”

If Brazil’s homicide rate in the early 1990s had been as low as Costa Rica’s — one of the lowest in the region at one-sixth Brazil’s rate — per capita income would have been about $200 higher and the gross domestic product 3.2 to 8.4 percent higher in the late 1990s, according to a World Bank report issued to the Brazilian government in September and released to The New York Times.

Across Latin America, the economic cost of crime is similarly pronounced, equal to 14.2 percent of the region’s GDP, according to a 1999 Inter-American Development Bank report, the most recent study of the region, though some critics suggest that estimate is too high.

“You have money spent on guarding stuff rather than making stuff,” said Michael Hood, Latin America economist for Barclays Capital. “There’s a large population standing around in blue blazers rather than engaged in more productive activities.”

Crime also hurts growth by lowering productivity, high school graduation rates and labor participation, according to a report released last year by the development bank. Social problems like high youth unemployment and deteriorated urban infrastructure, in turn, encourage more crime, the study said.

“Crime scares off domestic and foreign investment,” said Andrew Morrison, World Bank economist and a co-author of the Brazil report. “The evidence is that rising homicide rates lead to considerable costs in growth around in the region.”