NOVAFRICA Working Paper: Gangs, Labor Mobility, and Development

A new study in the NOVAFRICA Working Paper Series examines how criminal organizations impact economic development.

Using a spatial regression discontinuity design centered on gang-created territorial borders, the research finds that individuals in gang-controlled neighborhoods experience lower income, education, and material well-being compared to those just outside gang territory. A key factor? Restricted mobility, which limits labor-market opportunities and prevents people from accessing better job prospects.This study provides valuable insights into how crime and territorial control can significantly hinder economic mobility and development.

Tittle:

Gangs, Lobor Mobility, and Development

Nikita Melnikov

Nova SBE, and NOVAFRICA

Carlos Schmidt-Padilla

Goldman School of Public Policy, University of California, Berkeley

María Micaela Sviatschi

Department of Economics, Princeton University

ISSN 2183-0843
Working Paper No 2501
February 2025

Abstract:

We study how criminal organizations affect economic development. We exploit a natural experiment in El Salvador, where these criminal organizations emerged due to an exogenous shift in American immigration policy that led to the deportation of gang leaders from the
United States to El Salvador. Using a spatial regression discontinuity design that focuses on the gang-created system of borders, we find that individuals in gang-controlled neighborhoods have less material well-being, income, and education than individuals living only 50 meters away but outside of gang territory. None of these discontinuities existed before the arrival of the gangs. A key mechanism behind the results is that gangs restrict individuals’ mobility, affecting their labor-market options by preventing them from commuting to other
parts of the city. The results are not determined by high rates of selective migration, differential exposure to extortion and violence, or differences in public goods provision.

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