Effects of crime and violence on business confidence: evidence from Rio de Janeiro

Abstract

PurposeDue to the fact that crime and violence affect the economy and the business environment, and since the economic environment affects entrepreneurs' expectations and therefore their decisions, this study analyzes the effect of both violence and crime on the confidence of entrepreneurs from the state of Rio de Janeiro.Design/methodology/approachMaking use of time series methodology, the authors provide OLS and GMM estimates for the effects of violence and crime on the business confidence index of entrepreneurs in Rio de Janeiro. The analysis of the Rio de Janeiro case is relevant since Rio de Janeiro is the second state, after São Paulo, with the largest participation in the Brazilian GDP, and crime and violence have very high indicators in this state. The analysis comprises the period between January 2012 and July 2018 (monthly data).FindingsThe results suggest that violence and crime negatively impact business confidence in Rio de Janeiro. The estimates reveal that, among all economic and noneconomic variables, the third variable with the greatest impact on business confidence is “cargo thefts.” An increase of one standard deviation in this variable reduces business confidence by approximately 2.48 basis points, while increases of one standard deviation in “violent deaths,” “commerce thefts” and “extortion” reduce business confidence by approximately 1.24, 1.46 and 1.47 bp, respectively. The impacts caused by these violence and crime variables are greater than the effect caused by an increase of one standard deviation in the real interest rate.Practical implicationsThe findings reveal that a stable economic environment with economic growth is as important to business confidence as the adoption of policies aimed at increasing public security through the fight against crime and violence.Originality/valueIf on the one hand the literature provides evidence that crime is harmful to the economy, on the other hand no study has so far analyzed the impact of crime and violence on business confidence. This type of analysis is relevant since confidence is an important aspect in the expectation formation process and thus to production and investment decisions and economic activity. Thus, this study is the first to analyze the effects of crime and violence on business confidence and consequently, the first to explore the consequences of crime on the economy through the expectations channel.

Economics of natural disasters and technological innovations in Africa: an empirical evidence

“…Some unpredictable influences, such as life-threatening proceedings (like disasters), may affect technological innovation and productivity in an economy such as Africa. For instance, the most serious occurrence can undermine investor trust and reduces predicted investment returns (Almeida and Montes 2020 ). As a result, investors shift their investments to another country.…”

“…Consequently, it lessens the productive capital stock and the flow of innovations that increase productivity in a nation (Bandyopadhyay et al 2015 ). These unpredictably damaging occurrences directly impact FDI (Almeida and Montes 2020 ). As a result, foreign nations’ capacity to produce high-quality technology is threatened, and eventually, there may be a shortage of productive foreign capital.…”

“…Why does natural disasters are regarded as one of Africa’s most significant concerns for innovative activity? First, the most severe incident stifles investor confidence and lowers the projected investment return (Almeida and Montes 2020 ; Bandyopadhyay et al 2015 ; Desouza et al 2007 ). As a result, investors shift their investments to another country.…”

“…Consequently, it reduces a country’s productive capital stock and the flow of productivity-boosting innovations (Bandyopadhyay et al 2015 ). Second, severe events directly influence FDI (Almeida and Montes 2020 ). This eventually leads to a scarcity of productive foreign capital and jeopardizes the ability of foreign countries to provide high-quality technology.…”

Terrorism, innovation and venture capital

“…There are several reasons why terrorism is considered to be one of the most important issues for innovative activities. First, terrorism stifles investor confidence and tends to reduce expected return from invested capital (Desouza et al, 2007;Bandyopadhyay et al, 2015;Almeida and Montes, 2020). This in turn leads investors to shift their investment in another country.…”