THE CRIMINOGENIC EFFECTS OF ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS IN CANADA

Transcription

1 THE CRIMINOGENIC EFFECTS OF ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS IN CANADA " Chew Lee Ping BV 6925 CS Bachelor of Economics with Honours (Industrial Economics) 2012

2 fusat Kbidmat Maklumat Akadcmik UNIVERSm MALAYSIA SARAWAK P.KHIDMAT MAKLUMAT AKADEMIK IIIllfiiiflllli THE CRIMINOGENIC EFFECTS OF ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS IN CANADA CHEW LEE PING This project is submitted in partial fulfilment of the requirements for the degree of Bachelor of Economics with Honours (Ind strial Economics) Faculty of Economics and Business UNIVERSITI MALAYSIA SARAWAK 2012

3 Statement of Originality The work describe in the Final Year Project, entitled "The Criminogenic Effects of Economic and Demographic Characteristics in Canada" is to the best of the author's knowledge that of the author except where due reference is made Date Submitted Chew Lee Ping 23291

4 ABSTRACT THE CRIMINOGENIC EFFECTS O:F ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS IN CANADA BY CHEW LEE PING This study examines the relationships between crimes and their economic and demographic determinants in Canada. Cointegration and causality analyses have been canied out in this study for the sample period of 1971 to The results of cointegration analysis indicate that there is a cointegrated vector between the variables used for total crime and homicide, but no long-mn relationship existed between motor vehicle theft and economic and demographic variables. Granger causality tests show that total crime and homicide are affected by unemployment rate, real gross domestic product (GDP), proportion of population aged 15-24, and fertility rate in the long-run. Besides that, unemployment rate, proportion of population aged and fe11ility rate Granger cause total crime whereas the proportion of population aged Granger causes fertility rate in the short-mn. There is no short-mn causality existed between motor vehicle theft and the economic and demographic variables used in Canada.

5 ABSTRAK KESAN JENAYAH BAGI CIRI-CIRI EKONOMI DAN DEMOGRAF[ DI KANADA Oleh Chew Lee Ping Kajian ini mengkaji hubungan antara kes jenayah dan penentu ekonomi dan demografi di Kanada. Analisis kointegrasi dan ujian penye'jab telah dijalankan dalam kajian ini bagi tempoh 1971 hingga Keputusafl analisis kointegrasi menunjukkan bahawa terdapat satu yektor kointegrasi wujud antara pembolehubah yang digunakan untuk jumlah jenayah dan pembunuhan, tetapi tiada hubungan jangka panjang wujud an tara kecurian kenderaan motor dan pembolehubah ekonomi dan demografi. Ujian Penyebab Granger menunjukkan bahawa jumlah jenayah dan pembunuhan dipengaruhi oleh kadar pengangguran, Keluaran Dalam Negara Kasar (KDNK) benar, perkadaran penduduk berumur 15-24, dan kadar kesuburan dalanl ti jangka panjang. Selain daripada itu, kadar peogangguran, perkadaran penduduk yang berumur dan kadar kesuburan mengakibatkan jumlah jenayah manakala perkadaran penduduk berumur mempengaruhi kadar kesuburan dalam jangka pendek. Tiada hubungan jangka pendek wujud antara kecurian kenderaan motor dan pembolehubah ekonomi dan demografi yang digunakan di Kanada.

6 ACKNO\VLEDGEMENT First of all, I would like to express my special gratitude to my supervisor, Dr. Evan Lau Poh Hock for his guidance throughout this study. He has helped me a lot by giving useful advices and suggestions for me. I also like to give my deepest thanks to all the lecturers in Faculty of Economics and Business (FEB), UNIMAS for sharing their valuable knowlege throughout this study period. Last but not least, I would like to thank my family members for their moral support and financial support. My.grateful thanks also go to my friends and coursemates who help and give me encouragement to complete my final year project. VI

7 Pusat Kbidmat Maklumat Akademik UNlVERSm MALAYSIA SARAWAK T ABLE OF CONTENTS LIST OF FIGURES......ix LIST OF TAI3LES...x CHAPTER ONE: INTRODUCTION 1.0 Introduction Background of Study... " Problem Statement Objective ofthe Study General Objective Specific Objective Significance ofthe Study Scope of Study CHAPTER TWO: LITERATURE REVIEW 2.0 Introduction... '" Review ofthe Criminogenic Effects ofeconomic and Demographic Characteristics in Developed Countries Review ofthe Criminogenic Effects ofeconomic and Demographic Characteristics in Developing Countries Conclusion CHAPTER THREE: METHODOLOGY 3.0 Introduction...41 Vll

8 3.1 Model of Study Data Collection Data Analysis Unit Root Test Johansen Juselius Co integration Test Granger Causality Test CHAPTER FOUR: EMPIRICAL RESULTS AND DISCUSSION 4.0 Introduction Unit Root Test Results Johansen-Juselius Cointegration Test Results Granger Causality Test Results VEC Granger Causaility Test Results VAR Granger Causality :rest Results CHAPTER FIVE: CONCLUSION 5.0 Introduction Concluding Remarks Policy Implications Limitation and Recommendation of Study REFERENCES viii

9 LIST OF TABLES Table 1: Summary of Reviewed Literatures on the Criminogenic Effects of Economic and Demographic Characteristics in Developed Countries...28 Table 2: Summary of Reviewed Literatures on the Criminogenic Effects of Economic and Demographic Characteristics in Developing Countries...37 Table 3: KPSS Test Results...52 Table 4: 10hansen-luseIius Cointegration Test Results...,...53 Table 5: VEC Granger Causality Test Results Table 6: VAR Granger Causality Test Results...57 IX

10 LIST OF FIGURES Figure 1: Total Crime in Canada, Figure 2: Total Homicides in Canada, Figure 3: Motor Vehicle Theft in Canada, Figure 4: Unemployment Rate in Canada, Figure 5: Real Gross Domestic Product (GDP) in Canada, Figure 6: Proportion of Population of Aged in Canada, to Figure 7: Fertility Rate in Canada, Figure 8: Direction of Short-Run Causal Relationship for Modell and x

11 CHAPTER ONE INTRODUCTION 1.0 Introduction Crime has always existed as an aspect of human culture ever since the earliest of civilizations. It is generally prohibited by society through criminal laws advocating punishment by fine or imprisonment. Crime has been a major concern for many countries nowadays including Canada because it is a serious issue that affects everyone in society. Crime is both the calise and consequence of poverty, insecurity and under-development. Becker' s (1968) seminal woric, 'Crime and Punishmenc', suggested that an individual decides whether or not to participate in crime by comparing the costs and benefits of crime. Becker's theory of deterrence is an application of the general theory of rational behaviour under uncertainty. Becker's \vork 'Nas then extended by Ehrlich (1973) by considering a time allocation model. Ehrlich was the first one to empirically test the economic model of crime. He suggested that individuals have to '" decide the allocation of their time between legitimate and illegitimate activities. Significant theoretical and empirical developments have been made since the Becker-Ehrlich model. Becker (1968) and Ehrlich (1973) both provided a framework for the economic analysis of crime by assuming potential offenders as economically rational and utility maximizing. They theoretically related crime rate to various 1

12 factors such as law enforcement, socio-economic variables as well as demographic compositions. The bulk of empirical studies such as Entorf and Spengler (2000); Nikolaos and Alexandros (2009); and Sookram, Basdeo, Sumesar and Sarida." is (2010) used the Becker-Ehrlich model to investigate the impact ofdeterrence and the etiect of benefits and costs of legal and illegal activities on crime. In a world of increasing crime, policymakers and criminologists have focused much on crime prevention. To increase the efficiency of the investment in crin1c prevention, an understanding of the variables that influence the potential criminal's consideration of the costs and benefits of committing crime is necessary. By knowing what causes crime, societies can better fight it. Research on the economic determinants of criminal behaviour based on the Becker-Ehrlich model has received an enormous amount of attention by sociologists and criminologists. In fact, there are many incentives that cause an individual to participate in the criminal activities due to the unique economic and political conditions that characterize every country (Nikolaos and Alexandros, 2009). oj Besides economic variables, demographic factors as sho'hti in the papers of economists, psychologists and crimi~ologists are important also in influencing the propensity of an individual to be involved in criminal activities. For example, Blackmore (2003) found that the demographic factors such as the ratio of women to men, the size of economically active population and the proportion of the population that is male and aged 15 to 34 years of age show significant impacts on crim:: rates. 2

13 [n addition, Entorf and Spengler (2000) indicated that demographic variables such as the percentage of foreigners and the percentage of population aged years had significant influences on crimes. They suggested that further research focusing on social and demographic determinants should be carried out. Demographic factors appear to playa ey role in the determination of crime rates for both property crime and violent crime. The Becker-Ehrlich theory was developed to understand crimes with financial motivation. According to Buonannoa and Montolio (2008), property crime that only involve the taking of money or property, is better explained by economic variables such as youth unemployment rate. The economic variables explain a great amount of the variation between property crimes with clear economic motivations. On the other hand, individuals have different propensities to commit violent crimes. Violent crimes are rarely due to financial motivation. Violent crime can be categorised as a crime in which the offender uses violent force upon the victim. Therefore, the theory of Becker and Ehrlich is not as effective in understanding the occurrence of this kind of crime. The distribution of the propensity of the people to,,' commit violent crime seems to be more important than the economic factors. 3

14 1.1 Background of Study This study focuses on total crime and two specific crime types including homicide and motor vehicle theft over the period 1971 to 2009 in Canada. Figure 1: Total Crime in Canada, ,; ~~~~~~~~-~, en Q) E c u (;j... 0 ~ Q) ~ E :::3 ;z: Year Source: Canadian Socio-economic Information Management System (CANSIM) database, Statistics Canada. Crimes.. in Canada are typically divided into two broad categories: violence crimes that involve harm or threats of harm to people (including homicide, robbery, sexual assault, serious assault, attempted murder) and property crimes that involve theft of goods or money without threat or harm to the victim (including breaking and entering, motor vehicle theft, mischief offence). Both types of crime rates retlect security and safety in Canadian society. 4

15 Pusat Kbidmat MakJuDiat Akademik U~1VERSm MALAYSIA SARAWAK Figure 1 shows that the total crime reported to police in Canada had been increasing gradually from 1971 till the early 1990s. It fall steadily since then and reached its lowest level in 2009, to a total of 2,172,960 crimes. Three property crimes including motor vehicle thefts, mischief offences and breaking and entering explained the majority of this drop (Brennan and Dauvergne, 2011). Decreas(:s were also reported for other crime types such as homicide, attempted murder, serious assault and robbery Figure 2: Total Homicides in Canada, CIl 1) :-g (.) s ::r::: ~ ~ 1)..0 ~ 8 :3 550 Z , I I I I I I 'i... Year Source: CANSIM database, Statistics Canada. Figure 2 shows the nwnber of homicides in Canada during Types of homicide consist of first-degree murder, second-degree murder, manslaughter and infanticide. Homicide is considered to be the most serious criminal offence and a country's homicide rate can be used as a barometer to measure the level of violence 5

16 in society. As shown in tigure 2, in the early 1970s, Canada experienced a sharp rise in homicides cases. Such cases reached a peak of 711 in 1977 before gradually declining, with some annual fluctuations. Canada experienced a decline in number of homicide in the early 1990s after peaking in Since then, number of homicides have fluctuated but had been declining overall. It reached another peak of 663 in Police reported 610 homicides in 2009, which was still remain higher than number of homicides in the early 1970s. Figure 3: Motor Vehicle Theft in Canada, o ~~ ~ ~ ~ <+-. o... v.0 E ;::l Z ~ Year Source: CANSIM (database), Statistics Canada. Figure 3 ihustrates the total motor vehicle theft in Canada from 1971 to Police reported motor vehicle thefts are incidents in which a land-based motorized vehicle is taken, or attempted to be taken, without the owner's authorization. Motor vehicle theft is one of the most frequent police-reported offences in Canada and it is 6

17 one of the least likely crimes to be solved by police. In general, motor vehicles are stolen for joy-riding or re-sale by organized crime groups. After increasing steadily over the and reached a peak in 1996 of 180,123 cases, the number of motor vehicle theft had gradually declining. In 2009, police reported 107,992 motor vehicle thefts, in which the rate was 14% lower than the year before. However, it continues to remain well above the levels seen decades earlier. The decrease in police-reported motor vehicle thefts may be due to the implementation of specialized policies, youth prevention programs, and increased use of anti-theft devices like car alarms (Dauvergne, 2008). There are few economic and demographic variables used in this study that influence crime rate including upemployment rate, real gross domestic product, proportion of population of aged 15-24, and fertility rate. 7

18 Figure 4: Unemployment Rate in Canada, ,.-.., ~ '--' 10 d)... ~ ~ 9... d) = E > E d) = """"' ""'" Year Source: LABORST A Labour Statistics Database, International Labour Organization (llo) Department of Statistics. Unemployment rate is defined as the level of unemployment divided by the labour force. Unemployed persons are those who were available for work and were either on temporary layoff, had looked for work in the past 4 weeks or had a job to start within the next 4 weeks. The unemployment rate excludes discouraged workers who are available to work but no longer actively seeking employment. Unemployment is a difficult experience for 'many Canadians. It can bring varying hardships for individuals and their families in addition to the loss of work and income. As shown in figure 4, unemployment rate reached its highest levels in 1983 (12.0%) and 1993 (11.4%), following two major recessions in Canada. The unemployment rate increased from a decades-low of 6.0% in 2007 to 8.3% in The unemployment rate in 2009 was 2.2% higher than in

19 Figure 5: Real Gross Domestic Product (GDP) in Canada, ~ ~~ '""'... ea 0 0 s: ea -g s: ea U s: '" '-' c- O 0 ~ 600 v ~ Year Source: Organization for Economic Co-operation and Development (OECD) ilibrary. Real GOP is gross domestic product in constant dollars. It is a macroeconomic measure of the value of output economy adjusted for price changes. An increase in GOP is linked to higher economic growth and hence with a higher standard of living. Real gross domestic product in Canada increased steadily since early ] 970s. It dropped in 2009 ( billions Canadian Dollar), which was the first decrease since the 1990'-91 recession (Figure 5). 9

20 Figure 6: Proportion of Population of Aged in Canada, '<f2. 19 '--' -:t N I If) -0 d.) on ~ t::.2 -~ ::; < t:: 0 E Yeu Source: CANSIM (database), Statistics Canada. Figure 6 shows the proportion of population aged 15 to 24 in Canada from 1971 to The number of people aged between 15 and 24 has been calculated by aggregating two original age groups: and The age composition of the population is one of the most prominent explanations for changes in crime rates. Canada's 'baby-boom', which occurred between 1947 and 1966, had a significant impact on all aspects of the Canadian economy and society (Foote, 1996). As.' presented in figure 6, the proportion of group aged 15 to 24 had declined since early 1980s as baby-boomers aged and moved into adulthood. In 2009, the proportion of population aged 15-24(13.56%) was 0.08% fewer than previous year. 10

21 Figure 7: Fertility Rate in Canada, ~ ~ ~--~ I 1.4;1 _~i~i~iti~i~i~i~iriti~~i~i~ir'~i~i~i ~~~~-'~~~~~~~ t Year Source: OECD ilibrary. Total fertility rate is the average number of children that would be born per woman if all women lived to the end of their childbearing years and bore children according to a given fertility rate at each age. It is calculated by adding up the agespecific fertility rates defined over five yearly intervals. Figure 7 shows the total fertility rate (birth per woman) in Canada from 1971 to From 1971 to 1987, the fertility rate in Canada declined signiticantly from 2.19 to It increased after ti that and reached a peak of 1.71 on 1990 but still below the replacement level of 2.1 children per woman. The fertility rate ' then declined again and reached its lowest level ever recorded in 2000, at 1.49 children per woman. The decline in fertility rate was due to the large increase in the pmticipation of women in the Canadian labour force and significant cultural and religious changes in Canadian society (Ragan. 20 I 0). Since then, the fertility rate had experienced an upward trend, back up to

22 in The recent increase in fertility rate was caused by a rise in births to older women who are delaying tirst childbirth until they are in their 30s or forties. The fertility rate was then slightly decreased in 2009 to 1.66 children per woman. 1.2 Problem Statement Crime and its impact on society is one of the most important issues in Canada over the past few years. The number of police-reported crime in Canada declined in 2009, continuing the general drop seen over the past decade since peaking in early 1990s. There were about 43,000 less crimes reported to the police in 2009 compared to previous year (Dauvergne and Turner, 2010). While criminal activity in Canada as a whole has declined in recent ye.ars, some regions have been found to have experienced increased crime rates, and overall it remains an important issue for the society. Various factors such as economic and demographics factors will affec";: crime rate. Economic factors are expected to be good determinants of property crime since there is clear " financial motivation on property crime. Economic variables explain a great amount of the variation of property crime. On the other hand, it is more difticult to use the economic theory to analyse violent crimes, as the prosperity ofthe individuals to commit crime is more impoliant than the economic environment. Hence, demographic factors seem to be an important determinant for violent crime. 12

23 Economic variables included in this study are unemployment rate and real gross domestic product. The unemployment-crime relationship has been one of the focal points in the economic literature of crime. Unemployment can cause those affected to have difficulties integrating into society and the economy, which can lead people to commit crime as a way to acquire status. The bulk of literature such as Becker (1968); Cantor and Land (1985); Yoon and Joo (2005); O'Cinneide (2006); and Buonannon and Montolio (2008) suggested that the issue of increasing crime rates was often related to unemployment. The unemployment-crime relationship had been widely examined in the past and had obtained many different conclusions. The strength of this relationship remains ambiguous both in its nature and in its robustness. Unemployment rate can have ~oth positive and negative impacts on criminal activity through the increasing criminal motivations (Becker, 1968) and the reducing criminal opportunities effects (Cantor and Land, 1985) respectively. Becker (1968) said that there is positive relationship between unemployment and crime because the marginal return from legitimate earning activities is lower than before when individual is unemployed and therefore one is more likely to commit crime. In contrast, Can:tor and Land (1985) indicated!pat unemploymeni is negatively linked to crime because the expenditure on property and luxury goods reduced when people are unemployed. Moreover, they prefer to be at home or in close neighbourhoods. Hence, they may have more protection to their property and as such, the number of crime will reduce. 13

24 Real gross domestic product is another economic factor of crime frequently noted in the literature. Crime theory suggests that crimes, especially property crimes, increases and decreases with industrial expansion and contraction, whereby crime rates increase during downtums and decrease in periods of good economic conditions. The opportunity cost of crimes increases in an expanding economy. Hence, an increase in gross domestic product causes a decrease in the crime rate (Blackmore, 2003). However, few previous studies suggested that gross domestic product might have positive relationship with crime such as studies done by Ali and Peek (2009) and Cerro and Meloni (2000). According to Ali and Peek (2009), there is prosperity and more lucrative items to steal when the country has a higher gross domestic product. A higher gross domestic product expected to be more attractive for criminals since they entail greater opportunities. Consequently, the net effect of real gross domestic product on crime.rates could be ambiguous and it depends on the type of crimes being.examined. There are only a limited number of literatures in Canada exammmg the demographic factors influencing crime rates. Many of the literature reviewed only examine the economic factors of crime such as those by Chamlin and Cochran (2000); Tang '" (2009); Tang (2010); Habibullap and Baharom (2009); and Yearwood and Koinis (2011). They did not include a complete set of crime-influencing, variables in their empirical models. Omission of demographic variables will lead to misspecification of the model. Two demographic variables included in this study are age structure ofthe population and fertility rate. 14