The presence of organised crime has a large, negative impact on economic growth. New research by Professor Paolo Pinotti documents this effect in the southern Italian regions of Puglia and Basilicata, where the advent of Mafia-type organisations 40 years ago brought an abrupt and significant impoverishment.
His study, published in the August 2015 issue of the Economic Journal, shows that since the ''Mafia wars'' of the mid-1970s, the homicide rate quadrupled in the two regions and the growth rate fell from being the highest to the lowest in Italy.
Until the beginning of the 1970s, Puglia and Basilicata represented two success stories in southern Italy: low levels of crime, particularly no significant presence of criminal organisations; a relatively high level of economic development; and the highest growth rate among all Italian regions.
This situation changed dramatically during the ''Mafia wars'' of 1974-75, which brought an expansion of criminal organisations from other regions – Mafia, Camorra and ''Ndrangheta – to the south east of the Italian peninsula.
In those years, the homicide rate in Puglia and Basilicata jumped from one homicide for every 100,000 inhabitants – a level comparable to the centre north of Italy – to more than four homicides for every 100,000 inhabitants. During the same period, the economic growth of the two regions dropped from being the highest to become the lowest of the country.
Comparing Puglia and Basilicata with the other regions in southern Italy, the research quantifies the economic costs attributable to organised crime as a 20% loss of GDP per capita over 30 years – from the mid-1970s to the mid-2000s.
Sluggish economic performance was triggered by a strong contraction of private investment in the wake of increasing violence. Although private capital was gradually replaced by public investment, the latter was much less productive as criminal organisations distort and corrupt the public procurement process.
Indeed, according to the Italian judge Giovanni Falcone, who led the ''Maxi Trial'' against the Sicilian Mafia in 1987 and was later killed by the organisation, ''more than one fifth of Mafia profits come from public investment''.
The economic gap accumulated relative to the rest of Italy is explained by the substitution of more with less productive sources of capital. Since the presence of organised crime in Puglia and Basilicata is more recent and much less severe than in Sicily, Campania and Calabria, it seems likely that the economic costs in the latter regions are even higher.
Certainly, the five Italian regions with the highest presence of criminal organisations – Sicily, Campania, Calabria, Puglia and Basilicata – are also the poorest of the country.
''The Economic Costs of Organized Crime: Evidence from Southern Italy'' by Paolo Pinotti is published in the August 2015 issue of the Economic Journal. Paolo Pinotti is at Bocconi University, the Fondazione Rodolfo Debenedetti, the Paolo Baffi Center and the Dondena Center for Research on Social Dynamics and Public Policy.