Western Hemisphere > Honduras

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Dmitry Plotnikov
This paper presents a structural model of crime and output. Individuals make an occupational choice between criminal and legal activities. The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity. I calibrate the model to the Northern Triangle countries and conduct several policy experiments. I find that for a country like Honduras crime reduces GDP by about 3 percent through its negative effect on employment indirectly, in addition to direct costs of crime associated with material losses, which are in line with literature estimates. Also, the model generates a non-linear effect of crime on output and vice versa. On average I find that a one percent increase in output per capita implies about ½ percent decline in crime, while a decrease of about 5 percent in crime leads to about one percent increase in output per capita. These positive effects are larger if the initial level of crime is larger.
Ms. Kimberly Beaton, Mr. Roberto Garcia-Saltos, and Mr. Lorenzo U Figliuoli

Abstract

Abstract: Accelerating economic growth in Central America, Panama and the Dominican Republic (CAPDR) remains an elusive task. While the region performed relatively well in the post-global financial crisis period, over the last five years obstacles to growth have become more evident and new challenges have emerged. In response, the region has strengthened macro-financial frameworks but more progress will be required to pave the way to sustained growth and prosperity. This book considers the structural factors underlying the region’s growth outlook and assesses its macroeconomic and financial challenges to help shape the policy agenda going forward. The book first identifies the structural determinants of growth in the region related to: capital formation; employment; demographic factors, including immigration; productivity; and violence. It then highlights the importance of creating fiscal space through the design and implementation of fiscal rules and mechanisms to increase accountability (better quality of public spending, adequate policies to reduce income inequality and sustainable retirement plans). Finally, it presents recent evidence on the importance of a supportive financial sector for growth (including through financial inclusion and development).