Between crime and economic growth: the asymmetric role of public expenditure and unemployment

Crime influences an individual’s decision to work in the legal field and incurs opportunity costs owing to asymmetric roles. This study examines the relationship between crime and economic growth in Indonesia from 2011 to 2020, which is addressed in detail from spatial perspective by public spending and unemployment. Crimes become less harmful to economic growth when public expenditure is sufficiently satisfactory and labor force participation rates are at the optimal level. This suggests an asymmetric response of economic growth to crime, depending on public policy, security spending and the use of labor in the economy. Nevertheless, under pessimistic conditions, we find large and statistically significant spatial correlation coefficients for crime with asymmetric sources in the empirical specifications. Using a dynamic Spatial Durbin Model (SDM) to evaluate the relationship between crime and economic growth through spatial externalities, we discover evidence that increasing crime not only adversely affects the economic growth of one province but also has a spillover effect on the economic growth of the neighboring provinces.