Organized Crime and Firms: Evidence from Italy

Abstract

We employ staggered municipality-level anti-mafia enforcement actions over the 1995-2015 period in Italy to study the effect of organized crime on firms. At the municipality level, we find that as the influence of organized crime weakens, competition among firms, innovation activity, and competition for public procurement contracts increase. At the firm level, firms that do not exit in response to anti-mafia enforcement actions shrink in size and experience a decline in employee productivity, as well as a slight reduction in profitability. These results are more pronounced for firms that are treated by multiple anti-mafia enforcement actions, firms founded during the height of mafia activity, and firms that operate in the non-tradable sector. Our findings are consistent with accounts of organized crime members acting as cartel enforcers and using legitimate firms to launder money.

Keywords: Organized Crime, Competition, Corruption, Collusion, Barriers to Entry

JEL Classification: G30, G39, K42