Does Crime Deter South Africans from Self-Employment?

49 Pages Posted: 31 Oct 2016

See all articles by Katharina Grabrucker

Katharina Grabrucker

University of Passau

Michael Grimm

Erasmus University Rotterdam; University of Passau; IZA; DIW Berlin

Date Written: October 2016

Abstract

An often-heard argument is that South Africa's very high crime rate is the main reason for the country's small share of business ownership. Combining a fixed-effects model with an instrumental variable approach, we estimate the effect of crime on self-employment and business performance using a matched data set of census, survey and police data. In contrast to previous studies, which focus on perceived rather than actual crime and often deal with geographically limited areas, we do not find robust evidence that high crime rates have a negative impact on self-employment. Although the impact of crime is statistically significant and negative, it is economically small. Moreover, our results suggest a positive rather than a negative relationship between robbery and burglary and sales and average business profits. These results suggest that crime may not be in general a serious threat for small businesses in low and middle-income countries.

Keywords: crime, self-employment, microenterprises, South Africa, informal sector

JEL Classification: D22, J24, J46, K40, L26, O12

Suggested Citation

Grabrucker, Katharina and Grimm, Michael, Does Crime Deter South Africans from Self-Employment? (October 2016). IZA Discussion Paper No. 10280. Available at SSRN: https://ssrn.com/abstract=2861025

Katharina Grabrucker (Contact Author)

University of Passau ( email )

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Passau, 94032
Germany

Michael Grimm

Erasmus University Rotterdam ( email )

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P.O. Box 29776
The Hague, 2502LT
Netherlands

HOME PAGE: http://www.iss.nl

University of Passau ( email )

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Passau, 94032
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HOME PAGE: http://www.wiwi.uni-passau.de/grimm.html

IZA ( email )

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DIW Berlin ( email )

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Berlin, 10117
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