Violence in Mexico: An economic rationale of crime and its impacts

Abstract

Violence has been identified as an obstacle to economic growth in Mexico, and the purpose of this article is to 1) explain the high rate of homicide in Mexico and 2) estimate the impact of violence on the economy. An equation that is similar to Becker’s equation was defined, and it incorporates the benefits and costs of committing criminal activity; the estimates were performed with a dynamic panel of quarterly data from 32 federal entities. The study shows that a higher sentencing rate could inhibit the emergence of violence, whereas a higher rate of labor participation incentivizes additional criminal activity. In addition, it has been demonstrated that an increase in crime negatively impacts salaries as well as the rate of employers. Despite the strong inertia of violence, the homicide rate may be reduced if the sentencing rate is increased and economic growth is improved, which would reduce unemployment.