The impact of crime on firm entry

Abstract

The article investigates the effect of crime on firm entry rates in Italian provinces over the period 2007–2016. The extant literature focuses mainly on the relationship between crime and the sorting of new businesses. The present paper contributes to this stream of work by estimating the effect of crime on the overall propensity to engage in entrepreneurial activities across a national territory. We measure the extent to which property and violent crime affect firm entry rates using an instrumental variable approach in which the instrument for criminal activity is the effective abortion rate. Our findings suggest that crime has a negative, sizable impact on firm entry. The results are robust to alternative instrumental variables and firm entry indicators. This empirical exercise emphasizes the need to consider loss of new business activities as a downstream effect when computing the social costs of crime.