Global imbalances and the dark side of progress. The effect of

Desequilibrios globales y el lado obscuro del progreso
económico: el impacto del crimen y la violencia en el
crecimiento económico de Latinoamérica
Global imbalances and the dark side of progress. The effect of
modern irruption of violence on the economic growth in Latin
America
Rogelio Madrueño Aguilar
Instituto Complutense de Estudios Internacionales (ICEI)
rmadrueno@gmail.com
Resumen:
El objetivo de este artículo es establecer las bases de un marco metodológico para el estudio
de la delincuencia moderna y la violencia que se deriva de ella en un contexto de economía
abierta, con el fin de establecer las conexiones que alimentan este problema, así como estudiar
su impacto a nivel macroeconómico. La idea principal consiste en encontrar un enfoque
analítico adecuado que permita explicar la evolución de este fenómeno en Latinoamérica.
Para ello, también se especifica y estima un modelo econométrico preliminar que mide el
impacto de la delincuencia y su violencia relacionada en el crecimiento económico de
América Latina entre 1990 y 2007.
Palabras clave: Crecimiento Económico, Economía Política Internacional, Modelización
econometrica, Latinoamérica, sectores formales e informales; acuerdos institutionales.
Abstract:
The aim of this article is to set up the basis for a methodological framework to the study of
modern crime and its related violence in an open economy in order to establish the main
connections feeding this problem, and to study its impact at the macroeconomic level. The
main idea behind is to find a suitable analytical approach to explain the evolution of this issue
in Latin America. For this purpose, it is also specified and estimated an econometric model
that measures the impact of crime and its related violence on the economic growth in Latin
America between 1990 and 2007. The first section of the article deals with the main
characteristics that embrace the global organized crime and its related violence. The second
part focuses on the global roots of crime, with emphasis on the role of incentives behind this
phenomenon.
Key words: Economic growth, International Political Economy, Econometric Modeling,
Latin America, formal and informal sectors; institutional arrangements.
Introduction
The complex nature of global imbalances, something possibly not experienced in any
previous stage of the world history shows, on one hand, strong ties among countries, but also
the emergence of a new paradigm in the international system, represented by a series of
systemic crisis and the fast transformation of geo-politics and geo-economics. This has
evolved to a point at which the increasing effect of interdependence in the economic progress
of Nations has revealed at least two major challenges for developing countries. First, to
elucidate what viable options have weak states in order to face the current obstacles in their
societies, and second, how to delimit the new collective problems efficiently, which threaten
these societies further, especially those arising from the evolution of global imbalances (drug
trafficking, arms trafficking, white slavery, among others). This paper has two main purposes:
first, to analyze the systemic roots of what we call “the dark side of progress” and their link
with developing countries, with an emphasis on Latin America. Second, to consider an
empirical analysis of the impact of these negative externalities on the economic growth in this
region since 1990s. The econometric estimation evaluates the impact of crime and its related
violence on the growth rate (per capita) ―with an emphasis on the population with an income
lower than the ninth decile, in order to stress the role of inequality. The motivating ideas
behind this paper are closely correlated with the modern irruption of violence under the
protection of organized crime, and the mechanisms that have allowed this problem to achieve
quick results in a context where governments have tried to speed up the pace of institutional
reforms with a public interest objective and the increase of security measures.
1. Global Interdependence and new negative externalities
1.1 Towards an interdependent and dualistic approach on crime and its
related violence
The increasing interdependence in the world economy has evolved to a point in which Adam
Smith`s concern for inter–dependence ― considered as occasional variation factor in the
progress of nations owing to countries located beyond its immediate neighborhood ― has
become a more regular issue. Thus, its increasing effect ‘in the progress of opulence in […]
Nations’1 has given prominence to the question that stress the real capacity to strengthen
nowadays weak states, but also to what extent will be possible to create win-win scenarios to
delimit the new collective problems these countries have to face, not only the well-known
ones that are in the international agenda (e.g. global climate change), but also those global
risks such as drug trafficking, illicit arms trafficking, human trafficking, among others. These
negative externalities, by the way, have emerged as the major sources of wealth in the world
economy, and distorted the local, regional and international environment.2
1
Smith, Adam (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, p. 155 (Edinburgh,
1827)
2
See http://www.forbes.com/2010/06/04/biggest-illegal-businesses-business-crime.html
2
This “hidden” or negative aspects of development phenomena ― which means forms of
social and economic domination under the protection of political class and fuel by social
inequality and poverty3 ― incorporates and reflects the idea that the movement to economic
progress, through history, has not had a clearly defined orientation to achieve necessarily
positive social outcomes.4 That does not suggest that history has not a direction. It indeed has,
mainly in terms of the ‘succession of socio-economic systems’.5 However, we just stress the
idea that internal contradictions of the current international political and economic system
have provided through its intrinsic levels of uncertainty and conflict new and deeper levels of
imbalance in both the economy and society. That’s basically the effect of a growing
confrontation amid diverse socio-economic systems in a process of social and cultural defragmentation, expressed in terms of social polarization, which have generated due to the
process of globalization, not only complex network of interlinkages among countries but also
sources of tension, conflict and new global risks.6 In this context, a strong range of incentives
that wraps modern capitalist system, at different levels: economic, political and financial, has
encouraged opportunistic behavior under the shelter of financial deregulation and persistent
global imbalances, which have served as stimulus for corruption and impunity in the
aggregate level. In this regard, the evolution of economic progress has fully confirmed its dual
character, reminding also the instability nature of the economic system.7
1.2 Global interdependence and the new constraints of development
There is no doubt, that in the last fifty years, the world has experienced great transformations,
with unexpected outcomes. This can be seen in a multidimensional perspective, not only
global, regional, and local ones, but also in terms of its systemic structure (meta-, macro-,
meso- and micro-levels), which appears as particular characteristics of the strong interaction
between politics and financial issues, as well as the subordination of the real, productive,
economy to the financial one. This peculiarity can be seen in different channels: (i) the lack of
adequate regulation of global banks, which involved the complex set of banking transactions,
such as the impact of High-Frequency Trading on global markets8; (ii) simultaneous failure of
3
In fact, it is part of an old tradition, which stresses on ‘the persistence and rebuilding of the types of social
hierarchy that characterized old regimes’. See C. A. Bayly, “The Reconstitution of social hierarchies”, in Bayly,
The Birth of the Modern World 1780-1914, Balckwell publishing, 2004, U.K., op. cit., p. 395
4
This is a counter-argument of a long tradition in the human thought, which tends to underline the subjective
dimension of linearity and improvement. According to Weber this trend is strongly pervaded by the technical
change. See Taguieff, P., Le Sens du Progrès. Une Approche Historique et Philosophique, p. 23-24
(Flammarion/Paris, 2004).
5
Hobsbawm based on Lévi-Strauss points out that: ‘The hierarchy of levels is necessary to explain why history
has a direction. It is the growing emancipation of man from nature and his growing capacity of control it which
make history as a whole ‘oriented and irreversible‘. Hobsbawm, ‘What do historians owe to Karl Marx’, On
History. Abacus, Great Britain, 1997, op. cit., p. 201.
6
See Münch, Richard. Nation and Citizenship in the Global Age: From National to Transnational Ties and
Identities, Palgrave, (Great Britain, 2001)
7
Fitzgerald V, “Global Linkages, Vulnerable Economies and the Outbreak of Conflict”, Development, Volume
42, Number 3, September 1999 , pp. 57-64(8)
8
See Andrei Kirilenko. Mehrdad Samadi. Albert S. Kyle & Tugkan Tuzun, ‘The Flash Crash: The Impact of
High Frequency Trading on an Electronic Market’, CFTC Working Paper, 2011, pp. 63
3
these banks to prevent or anticipate crisis; (iii) the influence of these institutions to force
governments rescue them; (iv) highly banking and transnational corporations market
concentration at the global level9; and (v) negative impacts on the economy (social and
productive) due to the implementation of these elements.10 Within this sphere, an increasing
degree of violence and crime is also correlated with different instability forces that are not
necessarily far away from the great trends of the world economy.11 Despite the complexity,
since the 1960s, there has been evidence of what Hobsbawm describes as the increase in
violence together with the weakening of the nation–state.12 A variety of issues fed these
trends, for instance: (a) the Cold War heritage in terms of armaments and its new global
supply chain;(b) the consequences of the 1970s world recession and ‘the harsh and short–
sighted policies’ imposed on developing countries by international financial institutions; (c)
the decline in the social and productive fabric of developing countries and the high presence
of Multinational Corporations in host countries; (d) the increasing gap between financial
interests and citizens expectations in developing countries; (e) the strengthening of informal
institutions in many of these nations; and (f) the increase of drugs consumption and new
geopolitical trends in this sector, among others. These factors have outlined a new global
framework, based on a wide platform of poverty and inequality,13 which promotes endemic
social instability in different degrees and intensity (see Diagram 1).
It is true that, in the 1990s, the vast increase in global mobility (people, goods, services, and
ideas) revealed more clearly the strategic character of international relations. But it can also
not be denied that this has aggravated the connections between unequal states and stressed the
narrow governing elites’ interests at home and abroad,14 although not necessarily within the
classical “north–south” view, and without diminishing its weight to unleashed violence and
9
See J.B. Glattfelder and S. Battiston, ‘Backbone of complex networks of corporations: The flow of control’,
Physical Review, E 80 (2009).
10
See Marichal, C. Nueva historia de las Grandes Crisis Financieras. Una perspectiva global 1837-2008.
Random House Mandadori. España. 2010, p. 334 y 350. Policy implications of the corporate governance of
banks in developing countries can be seen in Thankom Arun, John Turner, ‘Corporate governance of banks in
developing economies: concepts and issues’, in T. Arun, J. Turner, Corporate governance and development:
reform, financial systems and legal frameworks, Edward Eldgar, 2009, USA, p. 210.
11
See Fisman, R & Miguel, E. Economic Gangsters. Corruption, Violence, and the Poverty of Nations,
Princeton University Press, (USA, 2008).
12
Especifically makes reference to the rise of public violence that is not restricted to one country. It concern not
only to terrorism but a phenomenon bigger than that. [In this respect] ‘a lot of this violence is made possible by
the extraordinary explosion in the global supply and availability of private persons and groups of sufficiently
cheap, powerfully destructive armaments capable of being handled by anybody.’ See Hobsbawm, E.,
Globalisation, Democracy and Terrorism, p. 139-140. (Great Britain, 2007)
13
See Milanovik, B., Worlds apart: measuring international and global inequality, Princeton U. Press. U.S.
2007
14
See F. Cooper, “Writing the History of Development”, The Journal of Modern European History, 8, 1 (2010),
p. 19-20
4
Diagram 1. Evolution of Interdependence and dualism in the Global Economy
Source: Author's elaboration
crime. The fact that this phenomenon underlined class interests at home and abroad with no
distinction between different types of national income do not deny that these problems
derived from sources on which major powers of the north have a decisive influence. For
instance, the so–called tax heavens, some of which are non-complete sovereign states, still
depend on its financial relationship with the major powers.15 Therefore, despite the most
important achievements in detecting and discouraging money laundering, historical evidence
clearly shows that a large measure of coordination, at least among the most industrialized
countries, could effectively be put into practice.16 The same applies to other sources of this
phenomenon. Let´s just think about the new global supply chain of armaments or the drug use
patterns in developed countries over the last two decades. At the end, the roots of this global
phenomenon face two big issues. On the one hand, the still limited institutional mechanisms
adopted by rich countries towards policy coherence for development, which allow
contradictory results for sustainable development.17 This might explain why flows of capital
have been from south to north, rather than the other way around, as conventional economic
theory would predict. On the other hand, there seems to be an inaccurate institutional
conception of this complex issue by international policy makers and the role of economic
incentives within a global and diverse community. This goes far beyond the issue of state
corruption. On the contrary, it involves not only the combination of impunity and corruption
but also of deteriorating institutional framework within the state. As a consequence the
development constraints in a high number of developing economies have been gaining greater
significance. An example of this is the economic growth pattern of the last three decades.
In this respect, it can be seen that even in countries with high economic growth acceleration,
the benefits of this growth do not necessarily provide the conditions for human welfare, or not
in the way they were conceived by a previous generation, especially for young people.
Therefore, social mobility has started to occur through more unorthodox channels. On the
contrary, government response capacity to create institutions that diminish these impacts has
been weak and rather attached to solutions that do not meet necessarily the needs of the
population.
When we observe the periods of growth acceleration in the world economy since the 1990s,
only forty-four countries have experienced sustainable economic growth, mainly the
European periphery (East and Central Europe) and East Asia. Both cover 77 % of these
aforementioned nations. The second group (six countries) is found in Africa (13%). The
region we study contains just two countries (Chile and Trinidad & Tobago) which show
successful performance on this matter (see Table 1)
This fact has strong implications because it stresses that Latin America shows so little
evidence in the first condition that opens the gate to development ―according to the
15
See Quirk, “Money Laundering: Muddying Macroeconomy”, Finance & Development, 1997, and
Masciandaro, Global finance crime: terrorist, money laundering, and offshore centres, 2004.
16
See Banco Interamericano de Desarrollo (2004). “El lavado de dinero en América Latina: ¿qué sabemos de él?
“, en, Informe de progreso económico y social en América Latina, 2005
17
Alonso et al, “Coherencia de políticas para el desarrollo en cinco donantes del CAD: lecciones para el caso
español”, Documento de trabajo, Nº 42., Fundación Carolina. España, 2010.
traditional view. Moreover, it can also be argued that is still the region with the highest level
of inequality on the globe.18 Both elements are a central part of the explanation of the
emergence of the new forms of violence in the region. The latter aspect just corroborates the
recent international empirical evidence among rich nations, which shows that ‘homicides are
more common in more unequal countries’.19
Table 1. Economic Growth Miracles in Latin America (1950-2009)
Region and country
Average Annual Growth Rate
Economic
Cycle
Current
Income Level
Latin America
Bra zil
Chile
Colombia
Mexico
Peru
Bolivia
Cos ta Rica
Dominica n Rep.
Ecua dor
8.0%
6.9%
5.7%
6.3%
6.6%
5.5%
13.2%
8,7%
6.2%
1966-1980
1990-1997
1963-1974
1959-1976
1959-1967
1961-1977
1957-1974
1969-1977
1966-1981y
1958-1967
MIC
MIC
MIC
MIC
MIC
MIC
MIC
MIC
MIC
El Sa lva dor
Gua tema la
Hondura s
Ja ma ica
Pa na ma
Pa ra gua y
Puerto Rico
5,8% y 5,1%
6.4%
5.4%
6.5%
7.4%
7.6%
7.4%
1970-1978
1960-1974
1961-1968
1963-1970
1959-1973
1967-1981
1958-1973y
1955-1963
MIC
MIC
MIC
MIC
MIC
MIC
HIC
Trinida d & Toba go
9.4% y 7.3%
1995-2007
HIC
Note: it is used the Haussman, Pritchet & Rodrik criteria (2004: 2). Growth acceleration means an
increase in per-capita growth of 2 percentage points or more. To qualify to this criterion, the
increase in growth has to be sustained for at least eight years and the post-acceleration growth rate
has to be at least 3.5 percent per year.
MIC: Middle income country, HIC: High income country
Source: Based on Maddison (2001) and UNCTAD Statistics (on line) http://unctadstat.unctad.org/
1.3 The new type of violence in Latin America
Traditionally, violence in the Latin American region was conceived as a part of a political
phenomenon, which was strongly influenced by the Cold War context. Historically, there
have been two big modalities of violence that can be differentiated by the political context as
well as its intensity, in terms of ideological performance of insurgent groups but also of the
counterinsurgency practices. First, previous to the wave of democracy in the region, it could
18
See H. Guillén. “De la orden cepalina del desarrollo al neoestructuralismo en América Latina”, Comercio
Exterior, 57, 4 (Mexico, 2007)
19
See Wilkinson and Pickett, The Spirit level. Why Equality is better for everyone, Penguin books, 2010, op. cit.,
p. 135
7
be seen a bi-univocal confrontation between bureaucratic-authoritarian regimes and insurgent
movements, and second, within the transition to democracy, a reduction of the worst practices
of the state against insurgents and guerrillas. Since the eighties, this violence framework has
added a new element which has to be with the influence of an unprecedented rise of
transnational organized flows not only on the behavior of insurgent movements but also as a
driving force behind urban and rural criminality.20
Having said this, it should not be denied the level of heterogeneity within the region, and
specifically that the role of new modalities of crime and its related violence occurs in certain
areas and specific regions. However, this new trend has become an increasingly worrying
social phenomenon in Latin America, once the region has also the highest homicide rate in the
world.21
In such a context, the complex networks of illegal activities are seen as the new element of
concern not only in terms of security for international organizations and national governments
but also as a factor that works against the creation of citizenship and eventually social
cohesion. Moreover these groups and their global supply chain have become specifically
potential factors to destabilize states and weak governments.22 Figures 1 and 2 illustrate two
facts. First, the main role of Latin America in this process, that shows the relative strong
specialization in the production of drugs, mainly cocaine and their connections with different
regions around the world (North America, West & Central Europe, and West Africa). It also
can be observed a double international specialization-pattern. On the one hand, the flow of
Latin American immigrants smuggled and the female trafficking into other countries, and on
the other hand, its role as a final receptor of firearms. Second, it is showed how these global
challenges are perceived as very likely risks for the international community.
2. Methodological
framework: Modeling interdependence
dualism on global crime, institutions and inequality
and
2.1 Crime, institutions and inequality: the role of incentives
Economic growth and development are broadly recognized as complex processes.
Nevertheless, until recently, there has been little interdisciplinary dialogue among scholars to
strengthen the understanding of institutions in order to know, how they interact with different
social, economical and political environments at aggregate level, specifically to analyze their
impact on economic growth among countries. In the field of economics, although some
important basic features are found within “Development Theory”, theoretical and testable
20
See E, R. Conrado, R. B. Manaut & R. C. Macías. “Struggles and Conflict” in P. G. Casanova , Latin America
today, United Nations University Press, 1993, pp. 264-342
21
See Gimenez & Sanaú, “Violence and Growth in Latin America”, 2007, p. 3.
22
See M. Berdal & M. Serrano (eds), Crimen transnacional organizado y seguridad internacional: cambio y
continuidad, FCE, 2005.
8
empirical efforts within both exogenous and endogenous perspective ― and stressing the
importance of institutions ― are quite recent.23 In this regard, the focus on crime and violence
Figure 1. The role of Latin America in the main global transnational organized crime flows
United
States of
America
Mexico
West & Central
Europa
Caribbean
Central
America
West Africa
Andean
Region
Brazil
Cocaine
Female trafficking victims (main sources)
Smuggling of migrants
Firearms
Source: UNODC, 2011
23
See for instance, G. Myrdal, Economic theory and underdeveloped regions, London, Duckworth, 1957. See
also, J.A. Alonso, “En defensa de la teoría del desarrollo”, Cuadernos Económicos, ICE, 78, 4 (Madrid, 2009).
9
Figure 2. Global risks landscape (more likely risks)
1000
®Fiscal crisis
®Geopolitical confflict
®Global imbalances &
®Economic disparity
®Global governance failures
currency volatility
500
Perceived impact in billion US $
®Water security
®Regulatory failures
®Food security
250
®Fragile states
®Corruption
®Organized crime
®iIlicit trade
®terrorism
®Threats from new technologies
100
unlikely
likely
very likely
Source: Source: World Economic Forum, 2011
and its relation to economic growth is even more scarce, especially those analysing the Latin
American region.24 For instance, Londoño & Guerrero (1999) adopted a four component
approach of economic costs (health loss, material loss, consume and work deterioration, and
people transfer) in order to measure urban violence. It stood out also the work of Giménez &
Sanaú (2009), who estimate a growth model (using panel data), which give emphasis on the
effect of investment and its cost, human capital, trade openness, and the violence and crime –
measured as the number of homicides per one hundred thousand inhabitants– on the growth of
the per capita income. Nevertheless, despite these efforts none of the studies mentioned above
rest on an integrated model in terms of global interlinkages.
Therefore, the second part of this article focuses on establishing some steps towards a
methodological framework for the study of modern crime and its related violence in an open
economy. Our approach assumes an eclectic view, and it is a derivation of Rodrik,
Subramanian and Trebbi’s (2002) model, which stresses “the primacy of institutions over
geography and integration within economic development.”25 As for us, we try to incorporate
24
See, for instance, G. S Becker (1968), J. L. Londoño & R. Guerrero (1999), F. Bourguignon (1999), P.
Fajnzylber, D. Lederman, & N. Loayza (2000), M. Kelly (2000), P. Fajnzylber, D. Lederman, & N. Loayza
(2002), S. Gupta, H. Davoodi1 & R. Alonso-Terme (2002), and P. Mauro (2004), A. Solimano (2004), ECLAC
(2008), N. Ospina & G. Giménez & Sanaú, J. (2009), and L. Gonzalez .(2010).
25
See, D. Rodrik, A. Subramanian & F. Trebbi, ‘Institutions rule: The primacy of Institutions over Geography
and Integration in Economic Development’, National Bureau of Economic Research, WP 9305, (Cambridge,
MA/2002). For a practical approach to Latin America, see J. A. Alonso, ‘Desigualdad, instituciones y progreso:
un debate entre la historia y el presente’, Revista de la Cepal, 93, diciembre 2007.
10
deep insights exposed in North (1990) in order to explain how informal institutions could
reinforce and feed crime and violence when they are under severe control of inequality and
poverty in a weak state context.
In the light of the above, it is essential to keep in mind the role of the incentive for human
cooperation, which can create conditions of certainty for a better human development and
capabilities. This point rests upon an old tradition of interpersonal cooperation studied by
Hayek, who referred to three broad levels of moral beliefs (innate, moral and intellectual
ones) in society, which bring together the roots of political and social conflict. The first level
give emphasis on instincts or moral feelings, the second level exemplifies the moral
traditions, such as the creation of the institution of private property and the third one, illustrate
the intellectual beliefs, which are conceived as an attempts to “better satisfied” the previous
two categories.26
More recently, North –from a different perspective– has studied the interaction and
composition of the first two levels. He has argued that informal and formal institutions do not
necessarily exclude each other and, eventually, could strengthen positive codes of conduct in
society, giving certainty and reducing transaction costs to economic agents in the long run.27
This, nevertheless, is just one case. In this article, we stress another scenario where informal
institutions do not connect with the creation of formal institutions, but on the contrary, live
with them, at their expense, creating uncertainty and increasing transaction costs in the
economy. Thus, in a context of impunity, corruption and deteriorating institutional framework
within the state, high inequality and poverty (and their determinants: market and income
concentration, job-scarce environment, unstructured labor market, informality, low-quality
education, etc.) provide informal mechanisms (local and external) against the rule of law and
the social contract,28 in such a way that the incentives to create virtuous circles in society are
rather low. The modus operandi of the different drug cartels in societies with those
characteristics illustrates this phenomenon. These groups support opportunistic behavior and
take advantage of the institutional vacuum at the local and international level, thanks to the
26
Stenographic version of the interview granted by F. A. Hayek to John O'Sullivan in 1985 Hayek his life and
thought. Films for the Humanities Inc. See also, F. A. Hayek, The Counter-Revolution of Science. Studies on the
abuse of reason. Free Press. USA. 1955.
27
North illustrate this with „the development of European long distance trade and the internal development of
more complex forms of organization“. See D North (1990): Institutions, institutional change and economic
performance, Cambridge University Press, United Kingdom, op, cit., p. 122
28
See K. Fandl, “The Role of Informal Legal Institutions in Economic Development”, Fordham International
Law Journal, Volume 32, Issue 1 2008 Article 9.
11
increasing amount of resources they have.29 That is why more of them are diversifying their
operations or are getting into other related businesses.30
According to the more recent analysis, the results of which are consistent with the economic
and sociological paradigms, ‘the inequality and the crime rates are positively correlated
(within each country and, particularly, between countries)’, showing a causation that goes
from inequality to crime rates. However, it has not been possible yet to detect the mechanisms
that support this relationship.31 In this respect, we assume the recognition of a complex
causality of this problem, as described in Diagram 2.
That is, global interdependence (through different channels) works as exogenous factor,
which means, it has direct influence on the evolution of crime and violence but, at the same
time, has an indirect impact through the extent of informal institutions. Within this
framework, informal institutions can expect to have a double trajectory in their relation with
crime and violence. On the one hand, they promote these negative externalities because of
their negative effect on the quality of formal institutions (more corruption and less rule of
law) and, on the other hand, crime and violence reinforce the deterioration of informal
institutions for their own benefit. As for the relationship among inequality, crime and
violence, we found also a double causality because inequality and poverty ― not by
themselves but in combination with the other factors ― raise crime. However, it is also
possible to anticipate this outcome, although not reduce inequality and poverty, because the
real benefits of these activities do not spread in such a way that make their citizens wealthier.
Finally, there is also a dual interaction among inequality, poverty and informal institutions,
mainly through a low economic growth (per capita) and lack of social cohesion. In our case,
the basic relation among the variables in the region seems to validate our proposal,
considering that the preliminary outcomes are consistent with our line of argument (see
Graph 1).
29
The the size of the world illegal drug trade was estimated to be worth US$321.6 billion in 2003. According to
United Nations, ‘drug trafficking fuels a global criminal enterprise valued in the hundreds of billions of dollars
that poses a growing challenge to stability and security’. United Nations Office on Drugs and Crime, World
Drug Report 2011, op. cit, p. 8. As regards drug legalization, there is strong debate among scholars. Those who
want legalization –included in benefit-cost analysis perspective– argue that crime and the health costs of
addiction and violence will both fall. We consider this a short sighted approach, once it does not consider the full
range of social and institutional mechanisms –mainly in developing countries– in regard to this problem.
30
See E. Buscaglia, “Legal and Economic Factors Determining Success and Failure in the Fight against
Organized Crime: An Empirical Assessment of the Palermo Convention”, Latin American and Caribbean Law
and Economics Association (ALACDE) Annual Papers, Berkeley Program in Law and Economics, UC
Berkeley, 2008.
31
P. Fajnzylber, D. Lederman, & N. Loayza, “Inequality and Violent Crime”, Journal of Law and Economics,
vol. XLV (Chicago/April 2002), p. 26
12
Diagram 2. The roots of crime and violence
Crime & Violence
Informal
Institutions
Inequality &
Poverty
Global Interdependence
(Cultural, Political &
Economical Factors)
Causality relation (Economic
& Sociological paradigm)
Causality
relation
always analized)
(not
Source: Author's elaboration based on Rodrik, Subramanian & Trebbi (2002)
2.2 Modeling the impact of crime and its related violence on the economic
growth
The model evaluates the impact of crime and violence on the growth rate (per capita) of Latin
American countries. Our approach reproduces the endogenous growth methodology
developed by Barro (1991) and Barro & Sala-i-Martín (2004), where the per capita growth
rate depends on the initial level of per capita income, as well as a vector of variables that
determine the dynamics of economic growth. That is:
Gi ,t = α i + β yi ,t 0 + δX i,t + ui,t ,
where Gi,t is
the growth rate of GDP per capita of the individual country i at year t; Xi,t is is the vector of
independent variables, which are as well determinants of the steady~state growth; and αi is
the fixed effect of the country i.
13
Graph 1. Basic relations to the study of crime and violence in Latin America (1990-2007)
Growth GDP per capita - Control of Corruption
Growth GDP per capita - Crime Violence
Inequality - Informality Sector
Inequality - Crime Violence
Inequality - Informality Sector
Informality - Crime Violence
Source: based on ECLAC, World Bank, OECD, Pan American Health Organization (2011) statistics on–line
14
The base specification of our model is as follows:
Gi , t = β1Vi, t + β 2 Ri , t Vi , t + β 3 I i , t + β 4 X i, t + ei , t
[1]
Where: Gi,t is the cumulative per capita growth rate in country i and period t, Vi,t is the crime
and violence rate, Ri,t a vector of variables linked to specific characteristics of the host
economies and which determine the impact of crime and violence, Ii,t is a vector of variable
concerning the institutional factors that determine the impact of crime and its related violence
within an economic growth environment. The main difference between Ri,t and Ii,t lies in the
fact that the former express internal and external elements of this countries that have a direct
influence on the dynamics of crime and violence, while the latter make just reference to
related aspects of the institutional structure in Latin American countries. Finally, X,i,t is a
vector of other explanatory variables of growth, and, ei,t is the residual term.
The first parameter, β1, explains the relationship between crime and economic growth. Β2
incorporates interaction terms between crime and particular characteristics of the host
economies, which may have an important influence, allowing organized crime to grow (e.g
corruption, economic integration to the world economy, arms imports, etc.).
These factors express directly linear relationships among factors that establish either the
intensity of global interactions in relation to criminal activities or structural features that have
become structural advantages to promote these activities. Β3 shows intrinsic institutional
characteristics of these economies that may feed crime and violence (legal structure and
property rights, informality, fiscal pact, poverty, and inequality). Finally, Β4 measures how
other relevant factors affect economic growth, such as governance or human capital (see
Annex for description). The last two parameters try to capture, on the one side, the role of
the incentives which shape the collective action and inter-temporal contracts in a society, and
therefore modify the capacity to strengthen or weaken the institutional framework. On the
other side, incorporate other important factors in explaining economic growth, especially,
specificities of Latin American economies. Both components represent a sine qua non
condition to explain the improvement or decline of economic and social development.32 As a
result, it should also be noted that the level of informality and the quality of governance are
thought to act as endogenous factors of the model on the basis of being a factor in
determining the crime rate.
3.
Econometric estimation and definitions of the variables
To corroborate our approach, our interest focuses on the empirical analysis of the impact of
negative externalities related organized crime on the economic growth of this region since the
1990s. It must be said that our model is based on an adaptation of the standard growth model
32
See Alonso, J. A. ‘Desigualdad, instituciones y progreso: un debate entre la historia y el presente’, Revista de
la CEPAL 93 Diciembre 2007, pp. 22
15
used by Barro (1991) and Barro and Sala-i-Martin (2004). However, it is distinguished from
others within the same analytical framework by virtue of not having been previously tested.
The model evaluates the impact of crime and violence on the growth rate (per capita), giving
emphasis on the population with an income lower than the ninth decile, ― although there is
an analytical extension to see the effects in the whole economy. This specification is taken
from Tezanos et al (2009), who measures this peculiarity with regard to the impact of aid on
growth in Latin America.33 In our case, the aim is to stress the role of inequality in these
societies and its relation to organized crime performance. It must be said that this method and
this specification have not been used yet to study the whole Latin American region.34
As for the empirical specification of the growth model, there are two kinds of variables:
endogenous and exogenous, and sets of proxy variables that are hypothesized to determine
economic growth. In this respect, it is recognized that data availability may impose limitations
to corroborate the reliability of empirical validation; nevertheless, we do believe that the
current set of statistics could show trends that are important for academic and policy
analysis.35 To reach this goal we have tried to maximize available information in order to
minimize the bias in the regression. The Annex provides more detail information about the
variables used as proxies. However, it is important to give more accurate information about
different proxy variables in our model:
In regard to crime activities, it is used the arithmetic mean of six criminal criteria at the
national level: (i) Total drug-related crimes; (ii) Trafficking in persons; (iii) Assault; (iv)
Rape; (v) Robbery; and (vi) Kidnapping. The sample uses the United Nations Survey of Crime
Trends and Operations of Criminal Justice Systems and the Pan American Health
Organization. This information is based on the number of police-recorded offences.
As for the arms transfers around the world economy, they are based on the trend
indicator value of the arms transfers database, released by the Stockholm International Peace
Research Institute.
The level of integration into the world economy is captured by the KOF index of
globalization, which covers three dimensions: economic, social and political, and it is based
on the works of Clark (2000), Norris (2000) and Keohane & Nye (2000).36
Informality is measured as the ratio of the total urban population employed in low
productivity (micro firms, home workers, unskilled workers and the self-employed) and the
33
The model specification is a derivation of a model which measures the impact of aid on growth in Latin
America. See S. Tezanos, R. Madrueño & M. Guijarro, “Impacto de la Ayuda sobre el crecimiento económico de
América Latina y el Caribe“, Cuadernos Económicos de ICE, nº 78, Diciembre 2009, pp. 187-220.
34
The only references within this field –but different approach– studying Latin America are: G. Giménez,
“Violence and Growth in Latin America”. Economical Analysis Working Papers, (Spain/2007), and BBVA
(2010): “Situación México. Cuarto trimestre”, Servicio de Estudios Económicos, BBVA, (México/2010).
35
See Thoumi, F. “The Numbers Game: Let’s All Guess The Size of Illegal Drug Industry!”, The Journal of
Drug Issues, 0022-0426/05/01 185-200, 2005.
36
‘It defines globalization to be the process of creating networks of connections among actors at multicontinental distances, mediated through a variety of flows including people, information and ideas, capital and
goods’ see http://globalization.kof.ethz.ch/static/pdf/method_2011.pdf (op. cit, p. 1)
16
total urban employed population. These series are published by ECLAC, based on the
household surveys (ECLAC), 1989-2006.
It should also be noted that the list of endogenous variables ― instrumented with GMM-style
instruments ― within the model are: the level of informality and an index of governance,
while the list of strictly exogenous variables are: trade volatility, diversification of the
economy and a globalization index (see Annex).37
The analysis uses the Arellano–Bond system GMM (generalized method of moments)
estimator and it is estimated by using the software Stata for the period 1990-2007.38 We have
made use of all the information available (for 16 of the 32 sample countries selected) for the
period 1990-2007. This period has been used due to the following two reasons: (a) this period
has shown a unprecedented rise in these type of flows and illustrate perfectly the new wave of
democratic context within the region, which historically it is coherent with the analysis we
have developed lines above (b) the second has to be with the availability of information,
which impede a more large dataset.
3.1 Main Results
The main results can be summarized as follows. First, the negative effect of crime and its
related violence on economic growth of Latin America cannot be ignored. The estimated
coefficient is negative in all our regressions although the impact varies. This econometric
analysis shows that GDP growth would be reduced by up to 4 percentage points (see table 2
and 3).39
As for the interaction terms between crime and some characteristics of host economies (such
as, arms imports, corruption, tropic and the index of globalization), the analysis found no
statistically significance, except for the last one. Despite this fact, it is worth mentioning that
corruption and its relation to crime appear to have a negative influence on the economy but
also that the globalization index and its interaction with crime tend to have a positive effect.
While the effect of this variable on growth was found to be positive, it is interesting to
examine the interactions of the other components of the system. In this case, the Gini
coefficient is also positively related with growth. Its coefficient is not just significantly
37
The Sargan test have showed that the instruments as a group are exogenous.
This methodology, proposed by Arellano and Bover (1995), builds a system, which ‘combines the standard set
of equations in first-differences with suitably lagged levels as instruments, with an additional set of equations in
levels with suitably lagged first-differences as instruments. Although the levels are necessarily correlated with
the individual-specific effects, it is assume that the first-differences are not correlated with individual-specific
effects, permitting lagged first-differences to be used as instruments in the levels equations [...]. The validity of
these additional instruments can be tested using standard Sargan tests of over-identifying restrictions’, See Bond,
Hoeffler & Temple, ‘GMM Estimation of Empirical Growth Models’, Disscusion Paper No 01/525, Economics
Group, Nuffield College, University of Oxford, 2001-W21, op., cit, p. 9
39
These result contrast with the estimation obtained by Londoño & Guerrero(1999), which consider a broad
perspective of the social costs of crime. In their case the value represents 14.2 percent of the region’s GDP.
38
17
Table 2. Equations of the effect of crime and violence on the growth of Latin America (19902007). ―GDP per capita within the population with an income lower than the ninth decile―
(1)
(2)
(3)
(4)
crime*corrup
0.0912
(0.04)
-4.3322
(1.89)**
0.0091
(0.86)
-0.0581
(1.27)
0.0959
(0.04)
-4.3262
(1.90)**
0.0091
(1.25)
-0.0583
(1.44)*
0.0868
(0.04)
-4.2211
(1.75)**
0.0083
(0.94)
-0.0583
(1.45)*
0.1162
(0.04)
-4.4615
(1.31)
0.0084
(0.60)
-0.0556
(1.16)
crime*globindex
0.0021
(1.44)*
0.0021
(1.65)*
0.0021
(1.60)*
0.0021
(1.40)*
0.6601
(3.31)***
-0.8817
(1.72)*
0.6893
(1.97)**
-0.8848
(1.65)*
0.0106
(0.08)
0.6633
(2.60)**
-0.8866
(1.35)*
-0.6360
(0.46)
-0.6089
(0.43)
-0.2936
(3.02)***
F(9,16)
(0.000)
-0.4173
(0.12)
-0.2953
(2.94)**
F(10,16)
(0.000)
-0.2971
(2.47)**
F(11,16)
(0.000)
ln(Gdppc10 )
crime
crime*armsm
crime*trop
gini
povgap
icrg
fi_legprop
0.6594
(3.29)***
-0.8693
(1.40)*
-0.0239
(0.00)
-0.6264
(0.29)
tax
linformality
kh
-0.2933
(2.55)**
F(10,16)
(0.000)
-0.6546
(0.48)
0.0199
(0.03)
post-estimation tests (p-value)
Sargan Test
0.973
0.993
0.979
0.893
Hansen Test
0.973
0.994
0.981
0.898
Robust absolute value of t statistics in parentheses
*significant at 10%; **significant at 5%; ***significant at 1%
Dynamic panel data GMM system, two step, robust, noconstant.
Countries: Argentina, Bolivia, Brazil, Chile, Colombia, República Dominicana, Ecuador, El Salvador,
Guatemala, México, Nicaragua, Panamá, Paraguay, Perú, Uruguay, Venezuela.
Time-periods (sample):
(1990-1991, 1992-1995, 1996-1999, 2000-2003 y 2004-2007)
Number of obs = 65 or 62
Endogenous variables: linf govermat or (rlcc), collapse
Instrumental variables: volcom, globindex, divert
GMM system estimation with standard errors and covariance with White heteroskedasticity consistent matrix,
collapsed instruments and Windmeijer correction for finite sample
Source: Author’s calculations
18
Table 3. Equations of the effect of crime and violence on the growth of Latin America (19902007). ―GDP per capita―
(1)
(2)
(3)
(4)
crime*corrup
0.0298
(0.01)
-4.3096
(1.81)**
0.0092
(0.87)
-0.0587
(1.31)
0.0419
(0.02)
-4.3025
(1.84)**
0.0093
(1.27)
-0.0587
(1.46)*
0.0404
(0.02)
-4.2006
(1.71)**
0.0085
(0.98)
-0.0587
(1.48)*
0.0421
(0.01)
-4.4129
(1.26)
0.0086
(0.61)
-0.0560
(1.19)
crime*globindex
0.0021
(1.37)*
0.0021
(1.58)*
0.0021
(1.55)*
0.0021
(1.33)
0.6634
(3.04)***
-0.8840
(1.70)*
0.6927
(1.94)**
-0.8968
(1.63)*
0.0092
(0.07)
0.6684
(2.35)**
-0.8941
(1.30)
-0.6100
(0.44)
-0.5882
(0.41)
0.2926
(2.97)***
F(9,16)
(0.000)**
-0.4162
(0.12)
-0.2948
(2.90)**
F(10,16)
(0.000)
ln(Gdppc)
crime
crime*armsm
crime*trop
gini
povgap
icrg
fi_legprop
0.6628
(3.00)***
-0.8707
(1.38)*
-0.0747
(0.01)
-0.5893
(0.28)
tax
linformality
kh
-0.2920
(2.54)**
F(10,16)
(0.000)
-0.6311
(0.45)
0.0275
(0.04)
-0.2970
(2.45)**
F(11,16)
(0.000)
post-estimation tests (p-value)
Sargan Test
0.974
0.993
0.979
0.900
Hansen Test
0.973
0.994
0.981
0.897
Robust absolute value of t statistics in parentheses
*significant at 10%; **significant at 5%; ***significant at 1%
Dynamic panel data GMM system, two step, robust, noconstant.
Countries: Argentina, Bolivia, Brazil, Chile, Colombia, República Dominicana, Ecuador, El Salvador,
Guatemala, México, Nicaragua, Panamá, Paraguay, Perú, Uruguay, Venezuela.
Time-periods (sample):
(1990-1991, 1992-1995, 1996-1999, 2000-2003 y 2004-2007)
Number of obs = 65 or 62
Endogenous variables: linf govermat or (rlcc), collapse
Instrumental variables: volcom, globindex, divert
GMM system estimation with standard errors and covariance with White heteroskedasticity consistent matrix,
collapsed instruments and Windmeijer correction for finite sample
Source: Author’s calculations
19
positive, it can also be seen that greater inequality goes along with high crime rates.40 The
same is true for the poverty gap. These outcomes appear to be consistent with some recent
trends in Latin American economies.41
In any case, such a specification illustrates, on the one hand, that the role of GDP per capita
― within the population with an income lower than the ninth decile ― on growth ― captures
with more intensity the adverse effects on the economy although the estimated coefficient was
not significant, on the other, GDP per capita, as a whole, does not show a trend to income
convergence. This finding is consistent with other empirical studies on the economic growth
in the region.
On the political and institutional side, legal structure and property rights have not had a
significant effect on growth. Nevertheless, in our case, this commitment to the rule of law has
shown a negative influence on the growth rate. Finally, the data reveal an interesting outcome
for human capital ― measured as a combined school enrollment rate: primary, secondary and
tertiary. Its coefficient is negative and significant.42 This pattern contradicts the usual belief
that human capital has a positive effect on economic growth. This could confirm that
political-economic environment in a country matters and it plays a role in enabling educated
people to contribute better in their society.43 A similar result with a long-term perspective is
obtained by V. Fitzgerald (2009), who emphasizes that the long-run economic growth
between Latin America and the rest of the world differs mainly due to qualification of labor
force.
Conclusion
The article has not only tried to shed light on how the relationships among organized crime,
society and states have been gaining ground in developing countries, but also promises to
yield insights into how notions of the state, informal institutions, inequality and open societies
correlate with a willingness to promote crime and violence. In this context, the concern raised
by Arendt in the quote that opens this article is still to be fulfilled in the economic tradition
within a more eclectic perspective.44 The arguments here exposed are an attempt to draw on
this aspect within a coherent methodology.45 An aim of our proposal is to contribute with a
40
Barro suggests that ‘crime rates bear little relation with the level of development but are more closely
ssociated with income inequality’, see R. Barro, ‘Quantity andf Quality of Economic Growth’, Working Papers
No 168, Central Bank of Chile, July 2002 op., cit, p. 1
41
According to Giménez & Sanau, ‘Latin America has a homicide rate that is almost three times the world
average‘, see G. Giménez Giménez & Sanau, ‘Violence and Growth in Latin America’, Economic Analysis
Working Papers, Vol. 6(8), 2007 op., cit, p. 3
42
These variables are traditionally used in studies of economic growth
43
See V. Fitzgerald, “La distribución de ingresos y rentas en América Latina durante el siglo XX: un estudio
inicial, Cuadernos Económicos, Núm 78, ICE, Madrid, 2009, p. 49.
44
Arendt does not deny ‘the large literature on war and warfare, which deals with the implements of violence’;
see H. Arendt (2005): On violence. Harcourt, Brace, Jovanovich, 1969. U.S, op. cit, 8.
45
That means that the phenomenon of crime and violence linked to organized crime after since 1960s has largely
been overlooked by scholars until very recently. If one looks for issues and topics approximating more closely to
those envisaged in this paper, one may stumble across the wide variety of historical, economical, sociological,
anthropological, legal, or political studies in three main aspects: (a) New collective problems and global
governance, (b) crime, violence and economic growth, and (c) international cooperation against organized crime.
20
comprehensive analysis that is not necessarily a regular issue among the economic literature
on this field. Although more exacting analysis should be carried out, the main results of this
study have shown us that organized crime has played a negative role on the economic growth
rate in Latin America. Two elements contribute to this outcome, the levels of inequality and
poverty, which are reinforced, endogenously, by the level of informality and the quality of
institutions. Exogenously, these elements are affected by the degree of integration with the
global economy. These results must be tempered by the fact that interactive variables have an
unclear role, threatening to put into question its relevance. The fact that the statistical
significance of these variables is low requires more detailed data that allow for better model
estimation. Nevertheless, it should be taken into count that the estimation of the impact of
crime on growth for the economy as a whole can further validate the entire estimation
approach.
From these outcomes it can be inferred a more controversial element related to Hayek’s
proposal of social and political conflict. This means that the levels of moral beliefs in Latin
America have adopted a more divergent path, which have strengthen the spontaneous cultural
ties, where some of them have transmuted to become part of the second level, which means, a
sort of “modern” formal institution in the Latin American region. The incentives behind these
two have become even stronger after a broad time period that have let them take distance
from the intellectual and political efforts, which are inserted into the third level of moral
beliefs.
In such a context, there is no doubt that the Latin American region will be facing a new big
challenge in the next years,46 not only due to the effects of the new global order, still under
construction, ― which stress a pattern of insertion of these countries into the global economy
based on commodity exports, setting up perverse incentives against inequality reduction ―,
but also due to their urgent need to create effective states with broad spectrum of development
policies. At the end of the day, this aim seems to be the only capable to prevent the
consolidation of negative externalities for their societies.
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24
Annex
Annex A1. Description of Variables
Categoria/Variable
Descripción
Fuente
GDP per ca pi ta growth (G)
GDP per ca pi ta growth ECLAC, (cons tant 2000 $) (cumula ti ve ECLAC s tatis tics , CEPALSTAT
a vera ge growth ra te)
log GDP per ca pita mi nus 10%
riches t, (lnGdppc10)
l og GDP per ca pi ta within the popul a tion wi th l ower income ECLAC s tatis tics , CEPALSTAT
tha n the ni nth decil e in ea ch country. (cons ta nt 2000 $).
(cumul ative a vera ge growth ra te)
log GDP per ca pi ta (lnyc)
GDP per ca pita CEPAL, (cons ta nt 2000 $)
ECLAC s tatis tics , CEPALSTAT
log crime a nd violence (crime)
Es tima ted morta lity ra te from homicide a nd other rel a ted
crime a cti viti es [per 100,000 pop.]: (1) Tota l Drug-Rela ted
Crimes a t the na tiona l l evel, (2) Tra fficki ng i n Pers ons a t the
na tiona l l evel, (3) As s a ult at the na tiona l level, (4) Ra pe a t
the na tiona l l evel, (5) Robbery a t the na tiona l level , (6)
Ki dnappi ng a t the na ti ona l level , number of poli ce-recorded
Es tima tes of s ix dimens i ons of governa nce: Voice a nd
a ccounta bili ty, Poli tical Sta bi lity, Government Effecti venes s ,
Regula tory Qua l ity, Rul e of La w, a nd Control of Corruption
Pa n American Hea lth Orga niza tion,
OMS, a nd United Na tions Office on
Drugs a nd Crime, UNODC
Governance (gov)
World Bank, Kaufma nn, Kra a y &
Ma s truzzi
TIV of a rms exports to (a rms m)
l og Trend Indicator Va lues (TIVs ) expres s ed in US$ m. a t Stockholm Interna ti onal Pea ce
cons ta nt (1990) pri ces
Res ea rch Ins ti tute (SIPRI) Arms
Tra ns fers Data bas e
Control of corruption (corrup)
Ca ptures perceptions of the extent to which publi c power i s World Bank, Kaufma nn, Kra a y &
exercis ed for priva te ga in, incl udi ng both petty a nd gra nd Ma s truzzi
forms of of corruption, as wel l a s "ca pture" of the s ta te by
el ites a nd pri va te interes ts
Overa ll
gl oba l iza ti on
(globindex)
The KOF Index of Globa lization mea s ures the three ma in the Swi s s Federa l Ins titute
di mens ions of gl oba liza tion: economi c, s ocia l a nd pol iti ca l
Technol ogy, Zurich
i ndex
of
Tropic (trop)
% La nd a rea i n geographi ca l tropi cs
Ga l l up Sa chs a nd Mel linger (1999)
Gi ni (gini)
The Gi ni coefficient va ries between zero a nd one, wi th zero World Development
repres enting perfect equa lity a nd one a hypothetica l World Bank s ta tis ti cs
s i tua ti on in whi ch one i ndivi dua l receives a ll the i ncome
Indica tors ,
Poverty Ga p (povgap)
Poverty ga p a t $1.25 a da y (PPP) (%)
Indica tors ,
World Development
World Bank s ta tis ti cs
Indica tor of Qua lity of Government Avera ge va lue of the ICRG va ria bl es : "Corrupti on," "Law & Interna ti onal Country Ris k Guide –
(icrg)
Order" a nd "Qua l ity of Burea ucra cy", mea s ured on a s cal e 0-1 The PRS Group (2009)
(geometric mea n)
Lega l Structure and Property Ri ghts
(fi _legprop)
Legal Structure a nd Securi ty of Property Ri ghts (geometri c Fra s er Ins titute, Economic Freedom
mea n)
of the Worl d Index
Tax revenue % GDP (ta x)
Tota l ta x revenue (includi ng s ocia l contributi ons )-centra l
government -% GDP (ECLAC) (geometri c mean)
Human Ca pital (kh)
Combined s chool enrol lment ra te: prima ry, s econda ry a nd World Development
terti a ry
World Bank s ta tis ti cs
Di vers i fica tion (diver)
Divers ifica tion indices of exports a nd imports of countries UNCTAD
a nd country groups
Tra de vol a til ity (volcom)
Sta nda rd devia tion of tota l net terms of tra de over the pa s t Ba s ed on World Development
five yea rs
Indi ca tors , CD-ROM (2008)
Informa lity (li nf)
Informa l s ector, log (percenta ge of the tota l
popula tion empl oyed i n low productivity a ctivities
urba n
ECLAC s tatis tics , CEPALSTAT
Indica tors ,
ECLAC s tatis tics , CEPALSTAT
Source: Author's elaboration
25
Annex A2. Correlation between the variables (the scatterplot matrix)
5
10
40
50
60
.2
.4
.6
.8
0
50
100
150
10
0
G
-10
10
lnPIBpc10
5
30
20
Tax
10
0
60
50
Gini
40
100
80
KH
60
40
.8
.6
ICRG
.4
.2
8
6
fi_legprop
4
2
150
100
crime
50
0
30
20
povgap
10
0
-10
0
10
0
10
20
30
40
60
80
100
2
4
6
8
0
10
20
30
Source: Author's elaboration
26