We analyze the real-economy effects of organized crime infiltrations in legitimate businesses. We focus on the case of the 'ndrangheta, a large criminal organization that originates from the South of Italy. Combining information from investigative records with panel data on firms' governance and balance sheets, we build an indicator of 'ndrangheta infiltrations in firms located in the Center and North of Italy, i.e. areas with no tradition of organized crime.
We show that (a) organized crime tends to infiltrate firms in financial distress and sectors that are more reliant on public sector demand or more prone to money laundering; (b) infiltration generates a significant rise in the affected firm's own revenues; and (c) the penetration of organized crime produces a long-run negative effect on economic growth at the local level.
Published in: American Economic Review, vol. 112, 8, pp. 2748-2773
