Jun 12, 2014

Remittances and the Impact on Crime in Mexico

From a paper by Steve Brito, Ana Corbacho, & René Osorio 
This working paper studies the effect of remittances from the United States on crime rates in Mexico. The topic is examined using municipal-level data on the percent of household receiving remittances and homicides per 100,000 inhabitants. Remittances are found to be associated with a decrease in homicide rates. Every 1 percent increase in the number of households receiving remittances reduces the homicide rate by 0.05 percent. Other types of crimes are analyzed, revealing a reduction in street robbery of 0.19 percent for every 1 percent increase in households receiving remittances. This decrease is also observed using a state- level panel in another specification. The mechanisms of transmission could be related to an income effect or an incapacitation effect of remittances increasing education, opening job opportunities, and/or reducing the amount of time available to engage in criminal activities. 
The authors add in the conclusions
We use municipal-level data for Mexico in 2010. Two major concerns rise in evaluating this impact: first, the presence of endogeneity between remittances and homicides originated by reverse causality and omitted factors, and second, violence related to drug trafficking. To address the first issue, we use the instrumental variable approach to deal with the endogeneity of remittances. The fact that early migration to the United States from Mexico is correlated with the historic railroad network allowed us to use the distance of each municipality to the U.S. border along the railroad network in 1920 as an instrument. With respect to the second concern, we use as a control the number of drug cartels in every municipality to separate out the effect of drug trafficking. With data on drug-related homicides, we group the municipalities in quintiles and estimate the impact of remittances controlling for these groups. Finally, we subtract drug-related homicides from total homicides to eliminate the effect of these criminals groups. p. 26-27. 
HT: Eve-Angeline Lambert 

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