The Impact of Violence Surges on Neighbourhood Business Activity

Abstract

Theoretical and empirical arguments suggest that fear of violence will cause consumers, employees and entrepreneurs to alter their routine activities in areas that experience a surge in violent activity. This paper argues that understanding how businesses respond to violence has important implications for understanding community crime cycles and offers further evidence of how crime impacts the choices individuals make with regard to where they live, shop and work. Using newly available longitudinal business data and homicide data disaggregated to the ZIP code level, an examination is made of the impact of violence surges on the creation, destruction and growth of business establishments in five large US cities between 1987 and 1994. Controlling for pre-existing levels of violence, it is found that increased violence has the greatest consequences for service-related establishments in low-crime neighbourhoods. This finding is consistent with the notion that the fear of victimisation imposes additional indirect costs to society through its negative impact on local business establishments.