The High Cost of Crime in Central America
In Central America, the human costs of crime remain one of the highest in the world. El Salvador, Guatemala, and Honduras—referred to as the Northern Triangle— account for about four-and-a-half percent of homicides worldwide despite only having about one-half-percent of the world’s population.
The economic costs are also high. In Honduras and El Salvador, for example, widespread criminal activity is costing these countries 16 percent of GDP, which includes 13 percent of GDP directly (such as business closures) and three percent of GDP indirectly (such as lack of job opportunities). And Guatemala might be losing seven percent of GDP from crime—six percent directly and one percent of GDP indirectly.
Because these economic losses are severe for Central America, which is facing widespread poverty and inequality, bringing down crime rates can pay off.
Recent surveys show that crime and corruption surpass employment and other economic challenges as the most pressing issues in the Northern Triangle.
Drug trafficking, availability of firearms, and youth violence are often cited as reasons for these high crime levels. However, as Nobel Laureate Gary Becker suggested in 1968, criminals are rational individuals who compare the expected cost and benefit of committing crimes with those of legal activities.
Given widespread poverty and lack of economic opportunities, as well as perceived corruption, it is not surprising that criminal activity becomes a viable option for some, potentially explaining why crime is so high in the Northern Triangle countries.
Crime has direct and indirect costs. The direct costs include output (goods) and resources (time and wages of both victims and criminals) lost due to criminal activity, and resources spent on security.
Examples of indirect costs include lower investment and employment opportunities, higher migration and corruption. All of these lead to increased criminal activity, generating a vicious cycle.
If individuals can choose between productive and criminal activities, crime becomes an equilibrium feature of the economy rather than an exogenous characteristic of individuals: if criminal opportunities still exist, somebody would accept them dampening the benefits of lower crime on economic activity.
Taken together, a virtuous circle exists between better economic conditions and lower crime—with a stronger effect from improvements in both the economy and security. Therefore, improving policing effectiveness and the criminal justice system is important—especially for high crime levels. Likewise, a combination of stable and inclusive growth, higher returns to legal activities together with lower barriers to entry and friendlier business regulations to generate job opportunities are also very impoertant to consistently lower crime over time.