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The economic costs of organized crime: evidence from southern Italy

  • Paolo Pinotti

    ()

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

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.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 868.

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Date of creation: Apr 2012
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Handle: RePEc:bdi:wptemi:td_868_12
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