Organized Crime and Firms: Evidence from Anti-Mafia Enforcement Actions

Abstract

We exploit staggered municipality-level anti-mafia enforcement actions over the 1995–2015 period in Italy to study how the presence of organized crime affects firms. Following enforcement actions, we find increases in competition among firms, innovation activity, and competition for public procurement contracts. Firms that do not exit after a weakening of organized crime shrink in size and experience a reduction in profitability. These results are more pronounced among firms founded during the heyday of the mafia and operating in the non-tradable sector. Our findings are consistent with organized crime acting as a barrier to entry and affecting local economic activity.

Keywords: Organized Crime, Corruption, Competition, Innovation, Money Laundering

JEL Classification: D73, K42, G38, H75