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Macroeconomic Determinants of Crime: Evidence from India

Article  in  SSRN Electronic Journal · July 2017

DOI: 10.2139/ssrn.3005019

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 Macroeconomic Determinants of Crime: Evidence from India

Zhen Cui and Devika Hazra

Abstract

This paper uses data from 1991–2015 to examine the relationship between crime, GDP per capita,

inflation, and unemployment rate in India. The Johansen cointegration test confirms the presence

of cointegration relationship between the variables. The Toda-Yamamoto Granger causality test

suggests that all the macroeconomic variables can significantly affect the crime level in India, and

vice versa.

Keywords: crime; macroeconomic conditions; GDP per capita; inflation; unemployment; India

JEL codes: K42, J11

 Cui: Department of Economics and Statistics, College of Business and Economics, California
State University, Los Angeles, Los Angeles, CA 90032; Email: zcui@calstatela.edu. Hazra
(corresponding author): Department of Economics and Statistics, College of Business and
Economics, California State University, Los Angeles, Los Angeles, CA 90032; Email:
dhazra@calstatela.edu. Phone: (323) 343-5256; Fax: (323) 343-6439.
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I. Introduction

Crime is one of the greatest source of concern for policy-makers as well as law-makers in both

developed and developing countries. In developed countries such as Canada, Japan, the United

Kingdom, and the United States, the total number of crimes has shown a steady decline in the past

decade (FBI, 1995–2016; Home Office, 2017; Kyodo, 2016; Statistics Canada, 2015). Meanwhile,

the opposite has been true for developing countries like India, Malaysia, Nigeria, and Pakistan

(Khan et al., 2015; Mavi, 2014; Tang, 2009; Umaru et al., 2013). Not only does crime impose

economic and monetary costs on individuals and the society, it also creates insecurity and

propagates a sense of fear, thereby imposing psychological costs. For policy-making directed

towards curbing crime, it is imperative to understand the factors — social, demographic, socio-

economic, or macroeconomic — that influence crime in a society. This study focuses on the effect

of macroeconomic factors, namely inflation, unemployment, and GDP per capita, on crime

occurrences in India.

The rationale behind the possible existence of a relationship between crime and

macroeconomic factors springs from Becker’s (1968) work, where he provides the economic

motive for crimes: “a person commits an offense if the expected utility to him exceeds the utility

he could get by using his time and other resources at other activities.” Brenner (1976) then argued

that failure to maintain a certain standard of living due to unemployment could lead some

individuals to indulge in criminal activities. Miethe et al. (1991) theorized that the improvement

of median family income in a society may increase the supply of attractive targets for crime. Allen

(1996) suggested that inflation reduces purchasing power and increases the cost of living.

Consequently, crime rates may rise because some individuals are unable to maintain their previous

standard of living.

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 Studies on the macroeconomic determinants of crime have been conducted for several

countries such as Pakistan, Nigeria, Malaysia, and the United States (Gillani et al., 2009; Tang et

al., 2007; Tang, 2009; Umaru et al., 2013). While there is an existing literature on economic

analysis of crime in India, no extensive research has been done to analyze the relationship between

crime and macroeconomic conditions in India (Nayar, 1975; Dreze et al., 2000; Dutta et al., 2009;

Kaur, 2014; Mukherjee et al., 2001). We are aware of one study, Mavi (2014), where ordinary

least squares (OLS) regression is used to examine the impact of macroeconomic factors (i.e., GDP

per capita, unemployment rate, percentage of urban population) on total crimes in India from

2001–2009. The study found that all three factors significantly affect crimes. However, OLS

regression analysis could encounter the issue of endogeneity. For example, more crimes might

hinder economic growth in the long run. Hence, using data from a longer time span of 1991–2015,

the present study adopts a vector autoregression (VAR) approach to analyze the impact of three

macroeconomic factors (i.e., inflation, unemployment rate, GDP per capita) on the total number

of crimes in India.

The remainder of the paper is organized as follows. Section II describes the data and

presents basic crime statistics in India, Section III discusses methodology and results, and Section

IV concludes.

II. Data Description

We obtain the 1991–2015 annual crime data from the National Crime Records Bureau (NCRB) of

India, under the Ministry of Home Affairs. The NCRB publishes two categories of crime data, IPC

(Indian Penal Code) and SLL (Special and Local Laws) cognizable crimes. Table 1 lists the broad

3
classification of crimes under IPC and SLL. We use total crimes, defined as the sum of IPC and
SLL crimes, in our VAR analysis in Section III.
Table 1 Classification of IPC and SLL crimes
IPC Crimes
• Crimes against body: murder, attempt to
murder, culpable homicide not amounting
to murder, kidnapping & abduction, hurt
and causing death by negligence
• Crimes against property: dacoity, its
preparation & assembly, robbery,
burglary, theft
• Crimes against public order: riots, arson
• Economic crimes: criminal breach of trust, •
cheating, counterfeiting
• Crimes against women: rape, dowry death, •
cruelty by husband and relatives, • Arms Act 1959
molestation, sexual harassment and
importation of girls
• Crimes against children: child rape,
kidnapping & abduction of children,
procuration of minor girls, selling/buying
of girls for prostitution, abetment to
suicide, exposure and abandonment,
infanticide, foeticide
• Others
4
SLL Crimes
• Gambling Act 1867
• Explosives & Explosives Substances Act
1884 & 1908
• Forest Act 1927
• Child Marriage Restraint Act 1929
• Registration of Foreigners Act 1930
• Excise Act 1944
• Essential Commodities Act 1955
Protection of Civil Rights Act 1955
• Immoral Traffic (Prevention) Act 1956
Copyright Act 1957
• Dowry Prohibition Act 1961
• Indian Passport Act 1967
• Antiquities & Art Treasures Act 1972
• Narcotic Drugs & Psychotropic,
Substances Act 1985
• Indecent Representation of Women
(Prohibition) Act 1986
• Sati Prevention Act 1987
• Terrorist & Disruptive Activities Act 1987
• Railways Act 1989
• SC/ST (Prevention of Atrocities) Act 1989
• other crimes including Cyber Laws under
Information Technology Act 2000
 Figure 1 plots the trend in IPC, SLL, and total crimes from 1991–2015, respectively. It

reveals that while total SLL crimes show a variable trend, total IPC crimes have decreased from

1991–2002 and increased steadily afterwards. Table 2 compares different types of crimes between

1991 and 2015.1 Specifically, crimes against body (per 1,000 people) have shown a sharp increase,

followed by crimes against women, economic crimes, and crimes committed under the Excise Act.

Meanwhile, the other types of crimes have decreased between 1991 and 2015.

Over time, the composition of the crimes in India has also changed (see Table 2). While

property crimes comprised the highest percentage of total crimes committed in 1991, crimes

against body surpassed the property crimes and came out on top in 2015. While shares of crimes

against women and economic crimes continued to rise, those of crimes committed under the

Gambling Act and crimes against public order have decreased. Unfortunately, violent crimes have

also continued to be a significant component of total crimes.

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The definition of each type is as follows. Crimes against body follow the IPC definition. Crimes

against women include IPC crimes against women as well as crimes under Sati Prevention Act,

Immoral Act, Dowry Prohibition Act, and Protection of Women from Domestic Violence Act.

Violent crimes include murder, attempt to murder, culpable homicide not amounting to murder,

attempt to commit culpable homicide, rape, kidnapping and abduction, dacoity, preparation and

assembly for dacoity, robbery, riots, arson, and dowry deaths. Crimes against public order, crimes

against property, and economic crimes follow their respective IPC definitions. Economic offenses

are crimes committed under Prevention of Corruption Act and related sections of IPC.

5
 Figure 1 Crime trends, 1991–2015

6
per 1,000 of population

0
1991

2004
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Total Crime (IPC) Crime (SLL)

Table 2 Comparison of different crimes between 1991 and 2015

1991 2015
Per % of Per % of
Crime Category Total 1,000 total Total 1,000 total
people crime people crime
Crimes against body 93,274 0.10 1.85 857,995 0.65 11.71
Crime against women 41,173 0.05 0.82 327,394 0.25 4.47
Violent crimes 247,645 0.27 4.90 335,901 0.25 4.58
Crimes against public order 105,309 0.12 2.09 86,265 0.07 1.18
Crimes against property 533,667 0.59 10.57 625,279 0.47 8.53
Economic crimes 49,428 0.05 0.98 150,170 0.11 2.05
Economic offenses 1,708 0.00 0.03 5,250 0.00 0.07
Excise Act 95,863 0.11 1.90 206,069 0.16 2.81
Essential Commodities Act 8,307 0.01 0.16 4,501 0.00 0.06
Gambling Act 167,113 0.18 3.31 130,134 0.10 1.78

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 Regarding macroeconomic variables, we extract the 1991–2015 annual inflation rate,

unemployment rate, and GDP per capita from the World Bank. Table 3 shows the summary

statistics of these variables as well as total crimes.

Table 3 Summary statistics of macroeconomic variables

Total crimes Inflation rate Unemployment rate GDP per capita

(%) (%) (in constant US$)

Mean 5,881,368 7.43 3.91 983.17

Standard deviation 685,478.40 3.02 0.31 371.73

Minimum 4,911,730 3.68 3.46 536.43

Maximum 7,326,099 13.23 4.40 1,751.75

III. Methodology & Results

First, we use two unit root tests, augmented Dickey-Fuller and Phillips-Perron, to examine the key

variables. Both tests allow for a constant and a deterministic trend. As shown in Table 4, the results

indicate that all the variables except Unemploymentt has a unit root at level. However, all variables

become stationary after first differencing. Thus, we conclude that Unemploymentt is integrated of

order zero, I(0), and the other variables are integrated of order one, I(1).

Table 4 Results of Unit Root Tests

Test Statistics
Variables
Augmented Dickey-Fuller Phillips-Perron

Level:

ln Total_Crimet -2.212 -2.305

ln GDPt -1.476 -1.487

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 Inflationt -2.832 -2.845

Unemploymentt -3.434* -3.412*

1st Difference:

Δ ln Total_Crimet -4.698*** -4.717***

Δ ln GDPt -4.012** -3.962**

Δ Inflationt -6.916*** -7.058***

Δ Unemploymentt -7.979*** -10.368***

Notes: Statistical significance level: *** 1%; ** 5%; * 10%.

Second, we select the optimal lag length for our VAR based on various lag order selection

criteria. The results indicate an optimal lag length of three, p = 3 (see Table 5). The VAR is well-

specified as the residuals have no serial correlation at the selected lag length.

Table 5 Results of Lag Order Selection Criteria

Lag LR AIC SIC HQIC

0 _ 3.839 4.038 3.886

1 153.660 -1.690 -0.699 -1.457

2 27.369 -1.480 0.305 -1.059

3 79.854* -3.655* -1.076* -3.048*

Notes: LR: likelihood ration; AIC: Akaike information criterion; SIC: Schwarz information
criterion; HQ: Hannan-Quinn information criterion. * indicates lag order selected by the criterion.

Third, we apply the Johansen cointegration test to the key variables and see if there exists

any cointegration relationship among them. As shown in Table 6, the results indicate the existence

of at most two cointegrating vectors at the 5% level in the system. Thus, the cointegration test

confirms the existence of cointegration relationship between crime, GDP per capita, inflation, and

unemployment rate in India.

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 Table 6 Results of Johansen Cointegration Test

# of Cointegrating Vectors Eigenvalue Trace Statistics 5% Critical Value

r=0 _ 80.73 47.21

r≤1 0.827 42.12 29.68

r≤2 0.755 11.14* 15.41

r≤3 0.245 4.95 3.76

Notes: * indicates the value of r selected by Johansen’s multiple-trace test procedure.

Last, based on the above results, we run the following VAR for the Toda and Yamamoto

(1995) augmented Granger causality test.

ln 𝑇𝑜𝑡𝑎𝑙_𝐶𝑟𝑖𝑚𝑒𝑡 𝛼1 𝐴11,1 𝐴12,1 𝐴13,1 𝐴14,1 ln 𝑇𝑜𝑡𝑎𝑙_𝐶𝑟𝑖𝑚𝑒𝑡−1

ln 𝐺𝐷𝑃𝑡 𝛼2 𝐴21,1 𝐴22,1 𝐴23,1 𝐴24,1 ln 𝐺𝐷𝑃𝑡−1
[ ] = [𝛼 ] + ×[ ]
𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛𝑡 3 𝐴31,1 𝐴32,1 𝐴33,1 𝐴34,1 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛𝑡−1
𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡𝑡 𝛼4 [𝐴41,1 𝐴42,1 𝐴43,1 𝐴44,1 ] 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡𝑡−1

𝐴11,𝑝 𝐴12,𝑝 𝐴13,𝑝 𝐴14,𝑝 ln 𝑇𝑜𝑡𝑎𝑙_𝐶𝑟𝑖𝑚𝑒𝑡−𝑝

𝐴21,𝑝 𝐴22,𝑝 𝐴23,𝑝 𝐴24,𝑝 ln 𝐺𝐷𝑃𝑡−𝑝
+⋯+ ×
𝐴31,𝑝 𝐴32,𝑝 𝐴33,𝑝 𝐴34,𝑝 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛𝑡−𝑝
[𝐴41,𝑝 𝐴42,𝑝 𝐴43,𝑝 𝐴44,𝑝 ] [𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡𝑡−𝑝 ]

𝐴11,𝑚 𝐴12,𝑚 𝐴13,𝑚 𝐴14,𝑚 ln 𝑇𝑜𝑡𝑎𝑙_𝐶𝑟𝑖𝑚𝑒𝑡−𝑚 𝜀1

𝐴21,𝑚 𝐴22,𝑚 𝐴23,𝑚 𝐴24,𝑚 ln 𝐺𝐷𝑃𝑡−𝑚 𝜀2
+ ×[ ] + [𝜀 ],
𝐴31,𝑚 𝐴32,𝑚 𝐴33,𝑚 𝐴34,𝑚 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛𝑡−𝑚 3
[𝐴41,𝑚 𝐴42,𝑚 𝐴43,𝑚 𝐴44,𝑚 ] 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡𝑡−𝑚 𝜀4

where p is the optimal lag length and m is (p + 1) lag order. We include one extra lag as the unit

root test indicates a maximum integration order of one for our variables, dmax = 1. The inclusion is

only to ensure that when variables are integrated, the asymptotic χ2 distribution critical value can

be applied to the Wald test statistics under the null hypothesis of no Granger causality. For instance,

if we reject the null hypothesis that 𝐴12,𝑝 = 0 ∀ 𝑝, then GDP per capita Granger causes crime. If

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we reject the null hypothesis that 𝐴21,𝑝 = 0 ∀ 𝑝, then crime Granger causes GDP per capita. Thus,

the above system with the extra lag is considered as unrestricted.

Table 7 reports the results of the Toda-Yamamoto Granger causality test. Specifically,

there is a two-way Granger causation between crime, GDP per capita, inflation, and unemployment.

In other words, macroeconomic conditions in India can significantly affect the crime level in the

country, while the crime level can also impact macroeconomic conditions.

Table 7 Results of Toda-Yamamoto Granger Causality Test

Dependent Modified Wald Test Statistics

Variables ln Total_Crimet ln GDPt Inflationt Unemploymentt

ln Total_Crimet _ 9.072** 37.960*** 53.931***

ln GDPt 41.987*** _ 40.887*** 18.772***

Inflationt 153.43*** 305.96*** _ 11.486***

Unemploymentt 15.098*** 7.618* 8.005** _

Notes: Statistical significance level: *** 1%; ** 5%; * 10%.

IV. Conclusion

This paper examines the relationship between the crime level and macroeconomic conditions in

India. It concludes that macroeconomic conditions can significantly affect the crime level. Lower

GDP per capita and higher inflation and unemployment rates increase the total number of crimes

in the country. The reverse causality is also implied by our analysis. Therefore, crime reduction

and macroeconomic improvement are interconnected in India; policies that target one will have

positive outcomes on the other.

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