Economic growth and crime: does uncertainty matter?

Abstract

This article contributes to the crime literature by exploring how the crime–uncertainty interaction impacts on economic growth. Using a panel of 25 countries over the period 1991 to 2007, we find evidence suggesting that increased crime has an asymmetric effect on growth depending on the future prospects of the economy as reflected in the degree of macroeconomic uncertainty. In particular, our results indicate that higher-than-average macroeconomic uncertainty enhances the adverse impact of crime on growth implying that a 10% increase in the crime rate can reduce annual per-capita GDP growth by between 0.49% and 0.62%.

Keywords:

• growth
• crime
• uncertainty

JEL Classification:

• O40
• K14
• D80

Notes

¹Austria (AUT), Bulgaria (BGR), Cyprus (CYP), Czech Republic (CZE), Denmark (DNK), Estonia (EST), Finland (FIN), France (FRA), Germany (DEU), Greece (GRC), Hungary (HUN), Ireland (IRL), Italy (ITA), Japan (JPN), Lithuania (LTU), Netherlands (NLD), Poland (POL), Portugal (PRT), Romania (ROM), Slovakia (SVK), Slovenia (SVN), Spain (ESP), Sweden (SWE), United Kingdom (GBR) and United States (USA).

² KOF index (actual flows), higher values indicate greater economic globalization.

³ For Japan and the USA, we collect data from the United Nations Surveys on Crime Trends and the Operations of Criminal Justice Systems.

⁴ Data were collected from the US Bureau of the Census (International Database).

⁵ For Bulgaria, Cyprus, Lithuania and Romania, industrial-production data are from Eurostat.

⁶ Due to unavailability of data for Japan and the USA, we resort to the (seasonally adjusted) Consumer Confidence Indicator (CCI) obtained from the monthly indicators of the OECD database.

⁷ See, for example, Ramey and Ramey (1995), Martin and Rogers (2000), Asteriou and Price (2005), Imbs (2007) and Furceri (2010).