A theory of organized crime, corruption and economic growth

Abstract

We develop a framework for studying the interactions between organized crime and corruption, together with the individual and combined effects of these phenomena on economic growth. Criminal organizations co-exist with law-abiding productive agents and potentially corrupt law enforcers. The crime syndicate obstructs the economic activities of agents through extortion, and may pay bribes to law enforcers in return for their compliance in this. We show how organized crime has a negative effect on growth, and how this effect may be either enhanced or mitigated in the presence of corruption. The outcome depends critically on a trade-off generated when corruption exists, that between a lower supply of crimes and the probability these crimes are more likely to be successful.

Public Debt, Corruption and Sustainable Economic Growth

“…Lambsdorff [75] presents a result showing that corruption lowers productivity. Corruption is also shown to be harmful to the economy through higher inflation [76,77] and a bigger shadow economy [78][79][80].…”

Fighting African conflicts and crimes: which governance tools matter?

“…The perilous character of development assistance (Asongu, 2012a); how existing corruptioncontrol levels (Asongu, 2013a) in the presence of wealth-effects (Asongu, 2013b) matter in the fight against the scourge; its detrimental character on stock market performance dynamics (Asongu, 2012b); the status of corruption-control as the most effective tool in the battle against the burgeoning phenomenon of African software piracy (Asongu & Andrés, 2013); the anatomy, causes and consequences of corruption (Kodila-Tekida, 2013; the nexus between alcohol and corruption (Kodila-Tekida, 2012c), inter alia. 3 There has been a heated debate on the socio-economic consequences, with findings establishing: no effects 3 , negative effects (Mauro, 1995;Mo 2001;Ugur & Dasgupta, 2011) or positive effects 3 on economic growth and investment; slightly weak effect of corruption on economic growth through investment (Mauro, 1997); negative incidence in investment-focused studies (Mauro, 1997;Brunetti et al, 1998;Aysan et al, 2007;BaliamouneLutz & Ndikumana, 2007;Everhart et al, 2009); perilous impact on foreign direct investment (Wei, 2000a) and bank credit (Wei, 2000b;Wei & Wu, 2001;Ahlin & Pang, 2008) in capital flows studies; negative quality (Tanzi & Davoodi, 1997) and return (Haque & Kneller, 2008;De la Croix & Delavallade, 2007) of public expenditure, especially in military (Gupta et al, 2001) and general (education, health and public) services (Delavallade, 2006) and; the deterioration of government income (Tanzi & Davoodi, 1997;Ghura, 1998;Friedman et al, 2000;Blackburn et al, 2008). Socio-economic effects of corruption have also been documented in the debates, with: pros 3 and neutrals (You & Khagram, 2005) on the negative incidences on inequality and poverty and; the disincentive of the scourge to education in terms of years of schooling …”

The stabilization role of police spending in a neo‐Keynesian economy with credit market imperfections

“…In market works, individuals supply effective labor hours (H Y it N it ) to a continuum of monopolistically competitive intermediate goods (IG) firms, indexed by q ∈ (0,1), which supply the composite of IG to a final good-producing firm. In line with the definition of Gaviria (2002) and Blackburn, Neanidis, and Rana (2017), criminal activities are modeled as quasi-organized crimes that impose an extortion cost on the production of IGs and therefore can be treated as a type of marginal cost to the firms. By investing and owning the physical capital stock, individuals rent it to the IG firms, which in turn use it as collateral for borrowing from a commercial bank.…”

“…In other words, an individual i does not extort from the same firm he is working in.9 Such victimization probability can be referred toImrohoroglu et al (2004Imrohoroglu et al ( , 2006, although they model crime as theft. In this article, we model crime as direct extortions from firms, as inBlackburn et al (2017). In stationary equilibrium, the victimization probability would then equal economy-wide crime rate, ̃.…”