The effect of organized crime on foreign investments: an empirical analysis for the Italian Provinces

Abstract

This paper estimates the effects of organized crime on FDI inflows in 103 Italian Provinces in the period 2004-06. The incidence of organized crime at a provincial level is quantified by means of several indicators, based on different data for each kind of crime: extortion; associations, including mafia (Art. 416 and 416-bis of the Italian Penal Code); attempts; arson. Several control variables are used, included a proxy for (financial) investment incentives provided by public sectors. Estimation suggests that FDI inflows are influenced by different variables. Our results show that the extent of extortion and the number of persons denounced for criminal association are significantly and negatively correlated to FDI inflows. Finally, our analysis suggests the presence of the organized crime is a strong disincentive for foreign investors, particularly in the least developed Italian Provinces.