Organized Crime, Corruption and Growth: Theory and Evidence

We develop a framework for studying the interactions between organized crime and corruption, together with the individual and combined effects of these phenomena on economic growth. Criminal organizations co-exist with law-abiding productive agents and potentially corrupt law enforcers. The crime syndicate obstructs the economic activities of agents through extortion, and may pay bribes to law enforcers in return for their compliance in this. We show how organized crime has a negative e¤ect on growth, and how this e¤ect may be either enhanced or mitigated in the presence of corruption. The latter of these possibilities is evidenced strongly in an exhaustive empirical investigation using a panel of Italian regions for the period 1983-2009.