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Organized Crime and Firms: Evidence from Anti-Mafia Enforcement Actions

We exploit staggered municipality-level anti-mafia enforcement actions over the 1995–2015 period in Italy to study the effect of organized crime on firms. Following anti-mafia enforcement actions, we find increases in competition among firms, innovation activity, and competition for public procurement contracts. Firms that do not exit after a weakening of organized crime shrink in size and experience a reduction in profitability, particularly subsequent to higher anti-mafia enforcement intensity. These results are more pronounced among firms founded during the heyday of the mafia and operating in the non-tradable sector. Our findings are consistent with accounts of organized crime groups acting as a barrier to entry and affecting economic growth.