Mexico's Spike In Crime Hurts The Economy

from the International Monetary Fund

-- this post authored by Christian Saborowski

The human and economic costs of crime in Mexico have risen to historic highs. 2017 was Mexico’s most violent year on record with over 25,000 homicides - a 50 percent jump since 2015. Economists usually distinguish direct and indirect costs associated with crime.

In our chart of the week from Mexico’s latest economic assessment we show that indirect costs alone are likely to be sizable in Mexico. This is because surveys show that many of the country’s businesses felt like they had no choice but to cancel growth plans, distribution routes or to reduce working schedules amid the rising security concerns.


Crime hurts firm growth

As the chart shows, economic activity for the country’s micro enterprises - the more than 95 percent of Mexico’s businesses that employ only up to ten people, such as family-owned corner bakeries - is most vulnerable. About 13 percent of micro enterprises affected by crime canceled their business expansion while almost a fifth reduced working schedules.

Prevention and Damages add to the cost

Then there are the direct costs. For households and firms combined, the direct costs of crime, such as preventive measures and damages, rose to a staggering 2.5 percent of GDP in 2017.

According to the National Institute of Statistics and Geography, which tracks crime affecting households and firms, direct crime-related costs for households grew from 1.1 percent of GDP in 2016 to 1.65 percent in 2017. In the case of the country’s businesses, the institute reported that the total amounted to 0.9 percent of GDP.

Micro enterprises affected by crime canceled their business expansion.

Even the largest firms are not safe

While crime disproportionately constrains micro enterprises, it also affects the largest firms. Mexico’s state-owned oil and gas giant, Pemex, is an example that shows even big companies are not immune to criminal acts impairing operations.

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Disclaimer: The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

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