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 extortion payments and the effects of extortion on firms and consumers.

About the speaker

Carlos Schmidt-Padilla is a Postdoctoral Fellow at the University of Pennsylvania’s Penn Development Research Initiative. His research leverages applied data science methods to study the political economy of development in Latin America and in sub-Saharan Africa. Specifically, his work focuses on crime, human capital, migration, and policing under weak institutions. Carlos holds a doctorate in Political Science from the University of California, Berkeley.