Mexico Businesses Fleeing Violence Creates Economic Disparity

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Insecurity in Mexico’s northern states has prompted a flow of business migration to other areas of Mexico, demonstrating the internal economic effects crime can have on a country and raising concerns about Mexico’s marginalized areas becoming caught in cycles of crime and poverty.

According to a report based on Mexico’s latest Financial Performance Index carried out by consultants Aregional, levels of insecurity in northern Mexico have caused businesses to migrate from the area, creating financial problems for northern states, but economic benefits for the central regions of Mexico, reported Cronica.

The study — which covers the period 2010-12 — found the state of Queretaro benefited the most from business displacement in terms of investment and employment growth, as companies relocated from violence torn areas such as Chihuahua and Nuevo Leon. 

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In a separate study, the Mexican Employers Association, Coparmex, estimated that the cost of crime to the Mexican economy was 1.3 percent of the country’s GDP — outstripping the country’s 2013 growth rate of 1.1 percent. 

InSight Crime Analysis

The economic impact of Mexico’s drug war violence is a common subject of debate. However, discussion is more usually focused on the impact of violence on foreign investment, either as a deterrent to investors or instigator of capital flight. In contrast, this latest report highlights how the effects are not just felt in terms of foreign direct investment (FDI) but also in the internal dynamics of Mexico’s economy. 

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The migration documented in the report essentially amounts to the internal displacement of businesses, something that has left clear economic winners and losers among Mexico’s states.

In 2013, Queretaro was considered one of the states with the best growth in FDI in the world, achieving an increase of 120% in infrastructure projects in the first half of 2013 alone. In contrast, states such as Chihuahua are not only losing out on investment and seeing businesses leave the area, they are also racking up debts (pdf) as the struggle to impose order takes its toll on state budgets.

The gap between safer and more dangerous states could grow ever larger, as capital flight means less jobs and opportunities, so more locals may be willing to turn to organized crime groups as one of the few sources of a decent living.

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