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Crime, Development and
Welfare in Latin America
Conference “Confronting Crime and Violence in Latin
America: Crafting a Public Policy Agenda,” July 2007
Rodrigo R. Soares
Catholic University of Rio de Janeiro (PUC-Rio), University of Maryland, NBER, IZA
with
Joana Naritomi
World Bank
Overview
1.
Crime and Welfare
2.
Latin America
i.
ii.
3.
Candidate Explanations
i.
ii.
4.
Measurement
Patterns
Socioeconomic conditions and repressive policies
Quantitative relevance
Concluding Remarks
1. Crime and Welfare
• Latin America has been traditionally regarded as a
particularly violent region of the world:
– Deaths to violence 200% higher than North America and Pacific,
450% higher than Western Europe, and 30% higher than Former
Communist block (WHO);
– 44% of the population reported being victim of some type of crime in
the previous year (ICVS);
– Crime and violence as the second most important public policy issue,
ranking first for countries such as Argentina, El Salvador, and
Venezuela (Latinobarómetro 2006).
1. Crime and Welfare
Violent Deaths - Regions of the World - 1990s (WHO)
25
Violent Deaths (per 100,000)
20
15
10
5
0
Latin America
North America
Western Europe
Form. Communist
Western Pacific
1. Crime and Welfare
• Many potential welfare implications:
– Direct welfare loss due to increased mortality;
– Reduced investments in human and physical capital due to shorter
planning horizon;
– Material costs, including both direct costs and expenditures on
criminal justice and crime prevention;
– Loss of human capital and productivity of those deceased,
incapacitated and incarcerated.
1. Crime and Welfare
• Material Costs:
– Direct costs and expenditures on criminal justice and
crime prevention: around 2.1% of the GDP per year for
the United States, and 3.6% for Latin America
(Bourguignon, 1999 and Londono and Guerrero, 1999);
– Considering monetary costs related to property crime,
number rises to 2.6% for the US and 5.1% for Latin
America (Bourguignon, 1999).
1. Crime and Welfare
• Welfare loss from injuries and increased mortality:
– Recent estimation of the welfare value from gains in life expectancy
are quantitatively very important.
– For violence, increased mortality has been shown to represent
welfare loss of the same order of magnitude of material costs
(Soares, 2006): 1 year of life expectancy associated with a yearly
social cost of 3.8% of GDP.
– Colombia lost 2.2 expected years of life to violence: social loss
analogous to permanent decline of 9.7% of yearly income, number
for the US would be only 0.9% (Soares, 2006).
100%
COLOMBIA
PHILIPPINES
VENEZUELA
CHILE
EL SALVADOR
BELIZE
SURINAME
MEXICO
BRAZIL
RUSSIAN FEDERATION
PUERTO RICO
KAZAKSTAN
BAHAMAS
CROATIA
LATVIA
ARGENTINA
SAINT KITTS AND NEVIS
ESTONIA
UKRAINE
KYRGYZSTAN
AZERBAIJAN
TAJIKISTAN
UNITED STATES
BELARUS
ECUADOR
ISRAEL
COSTA RICA
TRINIDAD AND TOBAGO
REPUBLIC OF MOLDOVA
LITHUANIA
TURKMENISTAN
ALBANIA
BARBADOS
PORTUGAL
CUBA
KUWAIT
GRENADA
SINGAPORE
UZBEKISTAN
ARMENIA
GEORGIA
FINLAND
SWEDEN
POLAND
FRANCE
URUGUAY
UNITED KINGDOM
LUXEMBOURG
CZECH REPUBLIC
BELGIUM
REPUBLIC OF KOREA
SLOVAK REPUBLIC
BULGARIA
AUSTRALIA
NEW ZEALAND
HONG KONG
CANADA
HUNGARY
GERMANY
ICELAND
ROMANIA
MAURITIUS
MALTA
JAPAN
SLOVENIA
ITALY
MACEDONIA
NORWAY
NETHERLANDS
AUSTRIA
IRELAND
GREECE
SPAIN
1. Crime and Welfare
Present Value of Social Cost of Violence from Reduced Life Expectancy (% of GDP), 1990s
> 250%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1. Crime and Welfare
• Indirect consequences of reduced length of life expectancy:
– Changes in behavior due to shorter planning horizon: reduced incentives to
take actions that generate long-term benefits and short-term costs;
– Decreased investments in human capital and health, reduced savings and
investments in physical capital, and possibly reduced growth.
– Link from mortality to investment in human capital and growth through
fertility (Lorentzen, McMillan, and Wacziarg, 2006, Kalemli-Ozcan, 2006).
– Connection leads to negative correlation between mortality and investment
in human and physical capital, and can be a source of poverty traps.
1. Crime and Welfare
• Intangible effects for the labor market and business climate:
– Deterioration of productivity, consumption, and labor force may constitute
major part of Latin American’s cost: 7.1% of GDP according to Londono and
Guerrero (1999).
– Crime has perverse effects on economic efficiency, reducing investment and
employment in poor urban Colombian communities (Gaviria and Velez,
2002).
– In Brazil, 52% of managers rank crime as a major business constraint (World
Bank’s Investment Climate Survey).
– But these dimensions are conceptually less clear and difficult to measure in
a straightforward way.
1. Crime and Welfare
Social Cost of Violence (yearly cost as % GDP), Latin America and US, 1990s
monet. costs
(medical, etc.)
growth
Subtotal
+ intangibles
from Londono
and Guerrero
(1999)
mortality
increase
public
secur.
justice
system
private
prevent.
opportunity
cost of
incarcerat.
Latin
America
2.0
1.1
0.5
1.4
0.1
0.6
0.1
5.8
12.9
US
0.9
0.5
1.3
0.6
0.6
0.2
0.0
4.1
-
2. Latin America
• International comparisons of crime have to deal
with measurement error in crime rates.
• Underreporting in official data is related to
institutional development (Soares, 2004)  may
bias conclusions from cross-country comparisons.
• Comparing victimization data and official records,
on can estimate the reporting rate (fraction of
crimes reported to authorities).
2. Latin America
Income per Capita and Reporting Rate of Thefts, Cross-section of Coutnries, 1990s
0
6
6.5
7
7.5
8
8.5
-1
2
R = 0.6523
ln(reporting rate of thefts)
-2
-3
-4
-5
-6
-7
-8
ln(income per capita)
9
9.5
10
10.5
11
2. Latin America
• Ignoring this problem can lead to wrong conclusion
in terms of the correlation between various
variables and development.
• But victimization surveys are available only for
some countries and few periods of time.
• Use information from number of deaths due to
violence as the best available alternative for
analyzing the evolution of crime through time.
2. Latin America
Crime Rates (%) from Victimization Data (ICVS), 1990s
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Latin America
Africa
Asia
Burglary
Former
Communist
Thefts
North America
Contact Crimes
Any Crime
Oceania
Western
Europe
2. Latin America
Crime Rates (%) from Victimization Data (ICVS), LA Countries, 1990s
60.0
50.0
40.0
30.0
20.0
10.0
0.0
ARGENTINA
BOLIVIA
BRAZIL
Burglary
Thefts
COLOMBIA
Contact Crimes
COSTA RICA
Any Crime
PARAGUAY
2. Latin America
• High crime rates in the region hide considerable
cross-country heterogeneity.
• Even more so when we look at evolution of death
due to violence through time:
– One group with increasing trend;
– Another with stable or declining trend.
2. Latin America
Mortality Rate by Violence, Selected Latin American Countries, Rising Trends
90
80
deaths to violence (per 100,000)
70
60
50
40
30
20
10
0
1979
1981
1983
1985
1987
ARGENTINA
1989
1991
BRAZIL
1993
1995
COLOMBIA
1997
1999
VENEZUELA
2001
2003
2. Latin America
Mortality Rate by Violence, Selected Latin American Countries, Declining and Stable Trends
50
45
deaths to violence (per 100,000)
40
35
30
25
20
15
10
5
0
1979
1981
Sources: Brazil: Datasus; Rest: WHO
1983
1985
1987
1989
CHILE
1991
1993
COSTA RICA
1995
MEXICO
1997
1999
2001
2003
2. Latin America
• High crime rates in Latin America span various
different types of crime and are not artifact of the
particular statistics used.
• What can explain this pattern?
• Why some countries have been successful at
maintaining low violence and others at reducing it,
while some have seen increasing violence?
3. Candidate Explanations
• Hypotheses can be classified in two groups:
– Socioeconomic conditions conducive to an environment where crime
is attractive to large fraction of the population;
– Government actions targeted at repression of criminal activities.
• From this interaction of forces – supply of potential criminals
vs. repressive measures – an equilibrium level violence
emerges.
3. Candidate Explanations
• Concentrate discussion on 7 Latin American
countries and a group of comparison countries:
– Latin American countries: Argentina, Brazil, Chile,
Colombia, Costa Rica, Mexico, and Venezuela ;
– Comparison group: Japan, US, South Korea, Spain,
Sweden and Russia.
3. Candidate Explanations
• Socioeconomic conditions:
– Inequality;
– Growth;
– Age structure of the population.
3. Candidate Explanations
• Repressive policies:
– Incarceration of offenders;
– Harsher penalties;
– Large police presence;
– Effective judicial systems;
– Respect to the law and a clean and efficient government apparatus.
3. Candidate Explanations
Socioeconomic Conditions and Repressive Policies
Violence
Growth
Gini
Pop
15-29
Rule of
Law
Police
Judges
Incarcer.
2000
1980-2000
2000
2000
2000
2000
2000
2001
Selected LA
Countries
28.4
0.7%
54.2
27%
-0.04
252
7.5
139
Comparison
Group
12.4
2.2%
35.2
22%
1.0
398
15.2
282
3. Candidate Explanations
Gini Index, Selected Latin American Countries and Comparison Group
60
50
Gini Index
40
30
20
10
0
Argentina
Brazil
Chile
Colombia
Costa
Rica
Mexico Venezuela
Japan
Korea
Russia
Spain
Sweden
United
States
3. Candidate Explanations
Young Population, Selected Latin American Countries and Comparison Group
0.30
0.25
% Pop 15-29
0.20
0.15
0.10
0.05
0.00
Argentina Brazil
Chile
Colombia Costa
Rica
Mexico Venezuela
Japan
Korea
Russia
Spain
Sweden
United
States
3. Candidate Explanations
Police, Selected Latin American Countries and Comparison Group
1,200
600
police per 100,000 inhab
500
400
300
200
100
0
Argentina Brazil
Chile
Colombia Costa
Rica
Mexico Venezuela
Japan
Korea
Russia
Spain
Sweden
United
States
3. Candidate Explanations
Incarceration, Selected Latin American Countries and Comparison Group
700
incareceration per 100,000 inhab
600
500
400
300
200
100
0
Argentina Brazil
Chile
Colombia Costa
Rica
Mexico Venezuela
Japan
Korea
Russia
Spain
Sweden
United
States
3. Candidate Explanations
• High crime rates in Latin America do not seem that
surprising after all:
– Economic and demographic factors put a large fraction of
the population at the margin of engaging in criminal
activities;
– At the same time, policies toward repression of crime and
violence are timid and likely ineffective.
• Is this enough to explain the observed differences?
3. Candidate Explanations
• Empirical literature offers estimates of effects on crime:
– Incarceration: Levitt (1996);
– Police: Levitt (2002);
– Fraction of young population: Levitt (1999);
– Inequality: Fajnzylber, Lederman, and Loayza (2002b);
– Growth: Fajnzylber, Lederman, and Loayza (2002b).
• Taking these seriously, how much can we explain?
3. Candidate Explanations
Response of Violence in L.A. if Variables were set to Average of Comparison
Group
Partial Effect
Variable Adjusted
Cumulative
Effect
Counterfactual
Level in L.A.
% reduction
from 28.4
incarceration rate
17.3
39%
17.3
police
21.2
25%
12.9
fraction of young population
26.1
8%
11.9
inequality (gini)
20.3
29%
8.5
growth (income p.c.)
27.3
4%
8.4
3. Candidate Explanations
• Violence in Latin America is not exceptionally high,
given socioeconomic conditions and repressive
policies, and what is known about their effects.
• Russia is an outlier within the comparison group; if
variables in Latin America were set to average of
comparison group excluding Russia, violence
would still fall to 14.1 (50% reduction).
3. Candidate Explanations
• Quantitative roles of inequality, incarceration rates, and
police are the most important.
– Incarceration rates and number of policemen are policy variables
directly under the control of the government.
– Inequality is an outcome variable that changes only very slowly
through time (Deininger and Squire, 1996).
• Stronger policies in relation to incarceration and policing
seem to be the most obvious immediate choice available.
4. Concluding Remarks
• Quantitative exercise brings implicit idea that the effectiveness of
policies will be transported. This is obviously not the case.
• Effectiveness of any given intervention will depend on the way it
is implemented and on the institutional context.
• Discussion also leaves out many relevant dimensions: police
technology and training, effectiveness of judicial system, social
norms related to violence, and interactions between citizen and
State.
• Still, specific experiences show that it is possible to bring these
together in an effective way: Bogotá, São Paulo, etc.