Crime and economic growth: A case study of Manaus, Brazil

Abstract

Due to economic and social advances since the 1990s, Brazil became the 7th largest economy in the world in 2012. However, crime rates have not stopped rising since the beginning of the last decade, with Brazil having the 11th largest homicide rate on the planet in that year (UN). In this paper we estimate how much crime harms economic activity from a case study of the city of Manaus, where in 2007 the organized crime group known as “FamA­lia do Norte†was created. We analyzed the effects on Manaus’ GDP per capita using the synthetic control method. The comparison between Manaus and its synthetic control in the period after the creation of the criminal group showed that the presence of the criminal faction diminished the city’s GDP by 3% per year. Robustness checks confirmed this result, showing how organized crime can disrupt the country’s economic advances.