45 Pages Posted: 15 May 2012
Date Written: April 27, 2012
I examine the post-war economic development of two regions in southern Italy exposed to mafia activity after the 1970s and apply synthetic control methods to estimate their counterfactual economic performance in the absence of organized crime. The synthetic control is a weighted average of other regions less affected by mafia activity that mimics the economic structure and outcomes of the regions of interest several years before the advent of organized crime. The comparison of actual and counterfactual development shows that the presence of mafia lowers the growth path, at the same time as murders increase sharply relative to the synthetic control. Evidence from electricity consumption and growth accounting suggest that lower GDP reflects a net loss of economic activity, due to the substitution of private capital with less productive public investment, rather than a mere reallocation from the official to the unofficial sector.
Keywords: organized crime, economic development, synthetic control methods
JEL Classification: K4, R11, O17
Suggested Citation: Suggested Citation
Pinotti, Paolo, The Economic Costs of Organized Crime: Evidence from Southern Italy (April 27, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 868. Available at SSRN: https://ssrn.com/abstract=2057979 or http://dx.doi.org/10.2139/ssrn.2057979