ABSTRACT
This chapter examines the effects of an increase in criminal and informal activities following globalization on growth in a North-South model. By globalization we mean an increased world demand for various goods, including products and services which are illegal or produced in the informal sector in the South. We analyse the effects of these shocks on growth and capital stocks in a North-South macroeconomic model, along the lines of Findlay (1980). We begin by outlining some stylized facts in the first section on globalization, informalization and increasing criminal activity. This is followed, in the second section, by a sketch of different approaches to understanding criminal, informal and shadowy activities and a discussion of the North-South model employed in the chapter. The third section analyses the North-South growth model, where the North is represented by a one-sector neoclassical growth model, and the South has surplus labour. An innovation of our model is that the institutionally given fixed real wage in the South is determined in the informal sector. We examine an increase in illicit/informal sector activity in the South, and increased migration from South to the North. Finally, the fourth section concludes with some policy implications.
