Gangs, Labor Mobility, and Development

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.