Fill out the brief form below for access to the free report.
What Does Rule of Law Tell Us About the Increase of Migrants at the U.S.-Mexico Border?
Nations with widespread corruption and weak rule of law tend to do a poor job fostering innovation and new business creation – and the Northern Triangle countries of Honduras, Guatemala, and El Salvador are no exceptions.
Nations with widespread corruption and weak rule of law tend to do a poor job fostering innovation and new business creation – and the Northern Triangle countries of Honduras, Guatemala, and El Salvador are no exceptions. In the region, entrenched elites and even criminal organizations are able to evade competition and prosecution by taking advantage of corrupt systems.
The result is to deter investment, leaving the residents of those countries with limited opportunities and a climate of insecurity and violence. These factors make the dangerous trek to the U.S.-Mexico border in search of better opportunities necessary in search of better lives and livelihoods.
Using data from the George W. Bush Institute-SMU Economic Growth Initiative’s Global Competitiveness Scorecard, we’ve examined the effects of crime, corruption, and weak institutions on the economic outcomes of El Salvador, Guatemala, and Honduras. The Scorecard’s Legal System and Property Rights indicator, which measures the effectiveness and integrity of a country’s government, demonstrates that all three countries score in the bottom quintile.
Additionally, each country has seen a worrisome decline in its score over the past 10 years. Guatemala has declined from the 29th to the 18th percentile and Honduras has declined from the 20th to the 15th percentile. El Salvador’s slide was the most dramatic – the country fell from the 41st percentile in 2010 to the 16th percentile in 2020.
Digging deeper into the causes, El Salvador, Guatemala, and Honduras all score in the bottom 10% on safety-related measures in the World Economic Forum’s Global Competitiveness Index (one of the Scorecard’s source indices). The index points to a lack of security, high homicide rates, and the pervasiveness of organized crime in the region.
In El Salvador, where gang-related violence is highest, it is estimated that the number of active gang-members exceeds the number of police and military officers combined, creating enormous strain on youth who are particularly susceptible to forcible gang recruitment. To make matters worse, the three countries all score in the bottom 15% on police reliability and the bottom quartile on legal and judicial transparency. In other words, they face not only a high incidence of crime but also an inability to bring criminals to justice.
Beyond the obvious threats to personal safety, crime and violence lead to economic repercussions. When a city or neighborhood is not safe, businesses struggle to attract customers and employees. Legitimate entities face persistent extortion from illicit actors, such as gangs.
In El Salvador specifically, gang infiltration of schools and fear for personal safety is one of the leading factors behind a growing school dropout rate. El Salvador's Ministry of Education reported that only 42.6% of students who were in sixth grade in 2011 were still in school in 2016. Young people in the Northern Triangle are inclined to flee when they do not have access to education and good employment.
In addition, the legal systems in the Northern Triangle are hampered by public sector corruption. El Salvador ranks 104 out of 180 on Transparency International’s Corruption Perception Index, with a score of 36 out of 100. Guatemala and Honduras rank in the bottom quintile, among the most corrupt nations in the world, with ranks of 149 and 157, and scores of 24 and 25, respectively.
In nations with low levels of safety and high levels of corruption, business owners often feel they must bear the full cost of protecting their assets or be required to pay bribes to government officials or local gangs in return for permission to operate. Patents, business incorporations, dispute resolutions, and due processes generally are all key protections offered by countries with robust institutions – and lacking from countries without them. When these protections do not exist, it becomes risker for businesses to operate and incentives for innovation and economic growth are stripped away.
There is a strong relationship between a nation’s performance on the Scorecard’s Legal System and Property Rights indicator and GDP per capita (a common proxy for standard of living). In fact, among the Scorecard’s six key indicators, Legal System and Property Rights is the most highly correlated with GDP per capita. This demonstrates that nations with weak legal systems often struggle to promote the investment needed to grow their economies and sustain a high standard of living for their citizens. El Salvador, Guatemala, and Honduras each have GDP per capita below $10,000. The United States’ GDP per capita is over $65,000.
Investment in Central America, from the U.S. and others, is needed to strengthen institutions. One high-impact strategy for limiting corruption and increasing transparency in the region is the development and digitalization of financial activities, such as paying taxes and banking. This effort reduces traditional opportunities for illicit activities, including money laundering. The digitalization of government services also promotes efficiencies and transparency, thereby restoring trust in government. Of course, a digital strategy should also include much-needed investment to provide citizens the high-speed internet and mobile connectivity that is required to access digital services. While it is not a panacea, a digital revolution will play a major role in creating a safer and less corrupt Northern Triangle.