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Increased crime rates could be an unexpected consequence of trade liberalisation for a number of developing countries, according to UWA Business School researchers.

Winthrop Professor Peter Robertson, along with colleagues from the UWA Business School and the University of New South Wales, examined the rates of thefts and burglaries in 72 countries between 1980 and 2008.

The results, said Winthrop Professor Robertson, showed that trade liberalisation could cause negative social consequences for some developing (labour abundant) countries. In contrast, a number of developed (capital abundant) countries found that undergoing trade liberalisation led to decreased crime rates.

Crime prevention costs

‘Crimes are related to inequality, and most people assume that greater inequalities lead to higher crime rates,' explained Winthrop Professor Robertson.

‘However, what is often overlooked is the cost of crime prevention.

‘Take the United States and Mexico as an example. Due to trade liberalisation, the United States is able to import cheap textiles and other goods from Mexico. The American textile industry shrinks, there is less demand for low skilled workers in America, and wages for these workers decrease accordingly.

‘In Mexico, however, there are increased export opportunities, and so the demand for these low skilled workers increases, as do wages.

‘Despite greater equalities, the crime rate in Mexico increases, while the crime rate in the United States decreases. But why?'

The researchers suggest the key to explaining fluctuating crime rates lies in the effect of trade liberalisation on wages in both developing and developed countries.

‘In a developing country such as Mexico, trade liberalisation tends to drive up wages and hence the cost of law enforcement, resulting in higher crime rates,' said Winthrop Professor Robertson. ‘Conversely for capital abundant countries like the United States, the falling cost of labour tends to have the opposite effect, making crime prevention institutions less costly.

‘Imagine you're a developing country like Congo, and wages go up and you have a police force or militia to keep law and order. You have to pay these people more as well, so the costs of crime prevention go up.

‘Inequality and wage costs are both important factors in crime rates, but wage costs are particularly important for labour intensive countries.'

Globalisation-an uneven burden?

These findings add substance to the arguments of commentators such as Dani Rodrik, a professor of international political economy at Harvard University, who argue that globalisation and trade liberalisation have additional costs-particularly for developing countries-in terms of unemployment, reduced wages, lost pensions and depopulated communities. The effects on crime rates, it seems, are spread unevenly among developing and developed countries.

Yet for the majority of countries undergoing trade liberalisation, emphasises Winthrop Professor Robertson, changes in crime rates will be minimal.

‘The most significant effects are felt in countries with greater labour-machinery rations - generally, the very rich and very poor countries. For the majority of countries, however, there is an insignificant effect,' he said.

‘There are large additional social costs of trade liberalisation in the most labour abundant countries, additional social benefits of trade liberalisation in the most capital abundant countries, but little or no additional social costs or benefits effect for most countries.

‘The results offer some support for globalisation sceptics and suggest very large effects, especially for the most labour abundant countries. But they also suggest that for the majority of countries, the link between trade liberalisation and crime is very small.'

This working paper was authored by Arghya Ghosh from the University of New South Wales, and Peter Robertson and Marie-Claire Robitaille, from The University of Western Australia.

Media references

Catherine Vogel (UWA Business School) +618 6488 7340
Verity Chia (UWA Business School) +618 6488 1346