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Latin America

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Crime -- Latin America -- Econometric models, Latin America -- Foreign economic relations -- United States, Foreign direct investment


In this article, we explore how crime and institutions affect the flow of capital in the form of foreign direct investment (FDI) to Latin American and Caribbean countries in the primary, secondary and tertiary sectors during the 1996-2010 period. We use three different variables related to violent crime: homicides, crime victimization, and an index of organized crime. We find that there is a correlation between the institutional and crime variables, where the significance of institutional variables tends to disappear when the crime variables are added to the model. We find that higher crime victimization and organized crime are associated with lower FDI in the tertiary sector. However, we do not find robust evidence of crime affecting FDI inflows to the primary and secondary sectors. Our findings have several implications which are discussed in the paper. Among the most important, we highlight the importance of continuing the efforts to decrease crime and, from an academic perspective; FDI studies should consider sector specific dynamics. As indicated by our results, while there may be global drivers to FDI, each sector has its own idiosyncrasies that need to be assessed and accounted for.


Pre-print of an article which was subsequently published in Latin America. Copyright (2015)

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