There is enormous variation in crime rates across countries, greater than differences in income or inequality would suggest. There are currently no explanations for this magnitude of variation. We show that much of this variation can be explained using trade flows. We add a “Crime” sector to a traditional two-sector two-input Heckscher-Ohlin model. Under autarky, countries have the same crime rate, but free trade is found to increase crime in the resource-rich country and to reduce crime in the labor-rich country by an equal amount. The negative externality from increased crime can be strong enough to cancel out the gains from trade for the resource-rich country. The paper also shows that foreign aid and highly mobile export-oriented industries can have negative consequences.
- gains from trade,
- resource curse
Available at: http://works.bepress.com/catherine_de_fontenay/16/