Economic Impacts of Organized Crime
Summary
Organized crime exerts multifaceted adverse effects on economies worldwide. By imposing extortion payments, criminal networks divert resources from productive investment, generate market distortions and exacerbate misallocation of capital. Firms operating under the threat of violence experience reduced technical efficiency, lower investment propensity and increased operational costs. These effects are especially pronounced in regions with weak governance and underdeveloped regulatory frameworks. On a broader scale, criminal infiltration of political institutions may lead to skewed allocation of public resources, undermining tax collection and channeling public spending towards sectors beneficial to illicit operations. Organised crime also deters foreign direct investment by increasing perceived political and security risks, resulting in slower job creation and innovation. The cumulative impact is a reduction in aggregate output, weakened institutional capacity and diminished long-term economic growth. Understanding and quantifying these mechanisms is essential for designing targeted policies to strengthen legal protections, enhance institutional resilience and restore market efficiency.
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Economic Impacts of Organized Crime publication trend
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Technical terms
Technical efficiency: A measure of a firm’s output relative to its inputs under given technology and management practices.
Value added: The net output of a firm after subtracting intermediate inputs, reflecting its contribution to overall economic output.
Extortion racketeering: The illegal practice of obtaining money or services through coercion or threats, typically by organised criminal groups.
Foreign direct investment (FDI): Cross-border investment by individuals or firms to acquire lasting interest in a foreign enterprise, reflecting long-term economic engagement.
Misallocation: Suboptimal distribution of resources across firms or sectors, leading to reduced aggregate productivity and output.
References
- Mafia risk perception: Evaluating the effect of organized crime on firm technical efficiency and investment proclivity. Socio-Economic Planning Sciences (2023).
- Uncovering illegal and underground economies: The case of mafia extortion racketeering. Journal of Public Economics (2023).
- Organized Crime, Captured Politicians, and the Allocation of Public Resources. The Journal of Law Economics and Organization (2021).
- Organized Crime and Foreign Direct Investment: Evidence From Criminal Groups in Mexico. Journal of Conflict Resolution (2022).
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