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The economic costs of organized crime: evidence from southern Italy

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  • Paolo Pinotti

    () (Universit� Bocconi, Department of policy analysis and public management)

Abstract

I examine the post-war economic development of two regions in southern Italy exposed to mafia activity after the 1970s and apply synthetic control methods to estimate their counterfactual economic performance in the absence of organized crime. The synthetic control is a weighted average of other regions less affected by mafia activity that mimics the economic structure and outcomes of the regions of interest several years before the advent of organized crime. The comparison of actual and counterfactual development shows that the presence of mafia lowers the growth path, at the same time as murders increase sharply relative to the synthetic control. Evidence from electricity consumption and growth accounting suggest that lower GDP reflects a net loss of economic activity, due to the substitution of private capital with less productive public investment, rather than a mere reallocation from the official to the unofficial sector.

Suggested Citation

  • Paolo Pinotti, 2012. "The economic costs of organized crime: evidence from southern Italy," Temi di discussione (Economic working papers) 868, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_868_12
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    2. Giuseppe De Feo & Giacomo Davide De Luca, 2017. "Mafia in the Ballot Box," American Economic Journal: Economic Policy, American Economic Association, pages 134-167.
    3. Moretti, Luigi, 2014. "Local financial development, socio-institutional environment, and firm productivity: Evidence from Italy," European Journal of Political Economy, Elsevier, pages 38-51.
    4. de Blasio, Guido & Maggio, Giuseppe & Menon, Carlo, 2016. "Down and out in Italian towns: Measuring the impact of economic downturns on crime," Economics Letters, Elsevier, vol. 146(C), pages 99-102.
    5. Francesco D'Amuri & Juri Marcucci, 2012. "The predictive power of Google searches in forecasting unemployment," Temi di discussione (Economic working papers) 891, Bank of Italy, Economic Research and International Relations Area.
    6. Lanzafame, Matteo, 2013. "Crime and regional growth in Italy," MPRA Paper 44343, University Library of Munich, Germany.
    7. Ho Fai Chan & Bruno S. Frey & Jana Gallus & Benno Torgler, 2013. "Does the John Bates Clark Medal boost subsequent productivity and citation success?," ECON - Working Papers 111, Department of Economics - University of Zurich.
    8. Guglielmo Barone & Gaia Narciso, 2011. "The effect of mafia on public transfers," Trinity Economics Papers tep2111, Trinity College Dublin, Department of Economics.
    9. Ando, Michihito, 2013. "Estimating the effects of nuclear power facilities on local income levels: A quasi-experimental approach," Working Paper Series 2013:3, Uppsala University, Department of Economics.
    10. Naddeo, Andreina, 2014. "How crime affects the economy: evidence from Italy," MPRA Paper 65419, University Library of Munich, Germany.
    11. Buonanno, Paolo & Durante, Ruben & Prarolo, Giovanni & Vanin, Paolo, 2011. "On the historical and geographic origins of the Sicilian mafia," MPRA Paper 37009, University Library of Munich, Germany, revised 01 Feb 2012.
    12. Meier, Stephan & Pierce, Lamar & Vaccaro, Antonino & La Cara, Barbara, 2016. "Trust and in-group favoritism in a culture of crime," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PA), pages 78-92.
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    16. Jinjarak, Yothin & Noy, Ilan & Zheng, Huanhuan, 2013. "Capital controls in Brazil – Stemming a tide with a signal?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2938-2952.
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    18. Barone, Guglielmo & Mocetti, Sauro, 2014. "Natural disasters, growth and institutions: A tale of two earthquakes," Journal of Urban Economics, Elsevier, vol. 84(C), pages 52-66.
    19. Antonio De Socio & Valentina Nigro, 2012. "Does corporate taxation affect cross-country firm leverage?," Temi di discussione (Economic working papers) 889, Bank of Italy, Economic Research and International Relations Area.
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    22. Capuano, Carlo & Purificato, Francesco, 2012. "The macroeconomic impact of organized crime: a neo-Kaleckian perspective," MPRA Paper 40077, University Library of Munich, Germany.
    23. Michele Manna & Alessandro Schiavone, 2012. "Externalities in interbank network: results from a dynamic simulation model," Temi di discussione (Economic working papers) 893, Bank of Italy, Economic Research and International Relations Area.
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    More about this item

    Keywords

    organized crime; economic development; synthetic control methods;

    JEL classification:

    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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