Gangs, Extortion, and Development in El Salvador

Gangs, Extortion, and Development in El Salvador 

Carlos Schmidt-Padilla, Postdoctoral Fellow, University of Pennsylvania's Penn Development Research Initiative 

Leveraging the borders of gang-controlled territory in San Salvador, El Salvador, in a spatial regression discontinuity framework, we study how gangs' territoriality affects economic development. We find that individuals in gang-controlled neighborhoods have less material well-being, income, and education than individuals living only 50 metres 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 labour-market options by preventing them from commuting to other parts of the city. 

Focusing on gang-related extortion and the dynamics of gang competition, and using detailed data on individual extortion payments to gangs and sales from a leading wholesale distributor of consumer goods and pharmaceuticals in El Salvador, we further document evidence on the determinants of…