Publication | The Impact of Crime and Violence on Economic Sector Diversity

By Viridiana Rios, Mexico Institute Global Fellow
December 21, 2015, Harvard University

Abstract:

Literature has focused attention on identifying whether crime and violence impact growth via changes in economic factor accumulation, i.e. reducing labor supply or increasing capital costs. Yet, much little is known as to how crime and violence may affect how economic factors are allocated. Using a unique dataset created with a text-analysis algorithm of web content, this paper traces a decade of economic activity at the subnational level to show that increases in criminal presence and violent crime reduce economic diversification, increase sector concentration, and diminish economic complexity. An increase of 9.8% in the number of criminal organizations is enough to eliminate one economic sector. Similar effects can be felt if homicides rates increase by more than 22.5%, or if gang-related violence increases by 5.4%. By addressing the impact that crime has on the diversification of production factors, this paper takes current literature one step forward: It goes from exploring the effects of crime in the demand/supply of production factors, to analyzing its effects on economic composition.

Download the paper here.

New Publication: Now for Public Debt in Mexico: Policy Lessons for the Effective Oversight of State and Municipal Government Finances

mexican pesosBy Heidi Jane M. Smith

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While Mexico has a very low debt-to-GDP ratio that is slightly above forty percent, its state and municipal portion hovers around 2.5% (IMF, World Economic Outlook Databases, 2012). Subnational governments have consistently been accused of taking on too much debt, allowing irresponsible repayment plans and consenting to outright political corruption. Especially since 2001, the first full year since the country revised its laws governing subnational borrowing rights, Mexico has experienced a significant rise in the indebtedness of its states and municipalities. During the past decade, total subnational debt went from $990 pesos per capita in 2001 to $3,450 pesos per capita in 2011 (ASF 2011). Although Mexico’s overall subnational debt is still at reasonable levels compared to other countries, this nation’s high vertical fiscal imbalances and de facto soft subnational budget constraints could continue to fuel observed trends unless national legislation governing the rights and responsibilities of subnational governments are made. One can argue that the pace of increasing debt has been constant, but it accelerated during the 2009 economic crisis when National GDP decreased substantially (around -6%). Actual proposals to harmonizing accounting standards among state and local governments, increase transparency and improve reporting requirements by the Mexican Ministry of Finance (Secretaría de Hacienda y Crédito Público, SHCP) are only a few steps towards improving fiscal policy at the local level. Reviewing policies to understand debt sources and improving bankruptcy laws to cope with moral hazard issues will help to maintain strong sustainable fiscal balances into the future.

This policy paper argues that alternative revenue sources are necessary for economic growth at the local level, but continued soft budget constraints and lax regulatory environments may also put Mexico’s future into jeopardy. Lessons learned from the United States’ state and municipal financing could provide valuable policy options for Mexico–thus, the paper provides policy recommendations for future public financial management considerations.

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Mexico to Overtake Russia by 2050 as U.S. Slides

6/23/15

5504964078_df874cacb5_zMexico and Indonesia will displace Russia and Italy among the top 10 economies in just 35 years’ time, with China, the U.S. and India taking the top three slots, according to forecasts by the Economist Intelligence Unit.

The world’s most populous nation will overtake the U.S. as early as 2026 in nominal gross domestic product in dollar terms.  India and China will each be richer than the next five nations — Indonesia, Germany, Japan, Brazil, and the U.K. — combined, representing “a scale of wealth relative to the rest of the top ten that is unique in recorded history,” according to the EIU.

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Upcoming Event! Economics and Transparency: Meeting the Challenge in the Americas

justice - gavel and bookWHEN: Tuesday, June 9, 1:30-5:00pm

WHERE: 6th Floor Auditorium, Woodrow Wilson International Center for Scholars

RSVP HERE.

Throughout much of Latin America, the “golden years” of economic growth during the last decade’s commodity boom have given way to economic decline or stagnation. At the same time, a mobilized citizenry is demanding better government performance. These two factors have focused unprecedented attention on rule of law deficits and official corruption. Meanwhile, relations among countries of the hemisphere have grown more complex. As much as the region has welcomed the normalization of U.S.-Cuban relations, the options for international insertion now extend far beyond the Western Hemisphere.

1:30-1:45pm: Keynote Remarks
The Honorable Juan Gabriel Valdés, Ambassador of Chile to the United States

1:45-3:15pm: Combatting Corruption and Building the Rule of Law
Alejandro Ponce, World Justice Project

Carlos Fernando Chamorro, Confidencial, Nicaragua

Eduardo Bohórquez, Transparencia Mexicana

Paulo Sotero, Director, Brazil Institute, Wilson Center

Moderator:
Daniel Zovatto, IDEA Internacional, Costa Rica

3:15-4:30pm: Hemispheric Relations in Leaner Times: What is the Path Forward?
Ambassador Gil Rishchynski, Ambassador of Canada to the United Nations

Roberto Russell, Universidad Torcuato di Tella, Argentina

Richard Feinberg, University of California, San Diego

Maria Hermínia Tavares de Almeida, Centro Brasileiro de Analise e Planejamento, São Paulo

Moderator:
Cynthia Arnson, Director, Latin American Program, Wilson Center

4:30-5:00pm: Closing Keynote
The Honorable Roberta Jacobson, Assistant Secretary of State for Western Hemisphere Affairs

*There will be a live webcast of this event. 

Mexico Gov’t Still Eyeing 5 pct Growth in 2018

Fox News Latino, 3/23/2015

pesoMexican Finance Secretary Luis Videgaray said the government still expects a series of recent economic reforms will lead to growth of 5 percent by the end of President Enrique Peña Nieto’s six-year term in 2018.

“I don’t have the slightest doubt that Mexico will have sustainable average growth rates in that range,” Videgaray said in an interview published Monday by El Universal newspaper.

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Drug Violence Crimping Economic Growth, Mexican Central Banker Says

10/20/14 Bloomberg 

mexico law enforcementMexican central bank Governor Agustin Carstens said drug-related violence is damping growth, hours after federal police took over security in 13 towns following the alleged massacre of students in Guerrero state. “There is no doubt that violence has been a negative factor,” Carstens, 56, said in an interview at Bloomberg’s Mexico City office. “This is a problem that Mexico has been tackling for the last few years. It’s a deeply-rooted problem.” Carstens cited a central bank analyst survey published Oct. 3 that showed public security problems as the top obstacle to Mexico’s economic expansion, followed by fiscal policy, weak domestic demand and international financial instability.

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Mexico Central Bank Lowers Growth Forecast on Weak Recovery

08/13/14 Bloomberg

banco de mexicoMexican policy makers lowered their 2014 growth forecast for the third time as Latin America’s second-largest economy struggles to bolster consumer sentiment and spending.

Gross domestic product will rise 2 percent to 2.8 percent this year, down from the previous forecast of 2.3 percent to 3.3 percent, the central bank said in its quarterly inflation report today. The forecast for next year was left unchanged at 3.2 percent to 4.2 percent.

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