This op-ed was originally posted on the Global Economic Governance 2012 Blog.  It can be found here:

Honduras’ industrial capital, San Pedro Sula, generates two-thirds of the country’s Gross Domestic Product (GDP), according to The Economist. The city of 1.2 million people is one of the top five exporters of clothes by volume to the United States, but the city is also a transportation hub to export the country’s main products: bananas, coffee, sugar, and tobacco. Thanks to foreign investment and a free trade agreement with the U.S. (CAFTA), San Pedro Sula has the lowest unemployment rate in Honduras. Yet, this industrial city has theworld’s highest murder rate with 159 annual killings per 100,000 people, three times more than New Orleans, the most dangerous city in the U.S.

More than 2,000 miles away, Ciudad Juárez shares a similar story. Since NAFTA, this Mexican city has experienced one of the highest population growth rates in the world as thousands of new residents have found jobs in its maquiladora industry. This border city thrives with assembly lines of home appliances, automotive parts, electronics, software, call centers, and other goods that are exported to the U.S.  But Ciudad Juárez is more famous for its average of eight murders a day. Every year, 148 people are killed per each 100,000 residents making it the second most violent city in the world.

Economists believe that job creation reduces crime, but this has not been the case of those two examples. Murders are not a consequence of trade and foreign investment. But it is evident that foreign investors and criminal organizations apply the same criteria to pick locations for trading their goods whether they are illicit or not. Right in the U.S.-Mexico border, Ciudad Juárez is an ideal place to offshore manufacturing of durable goods. It is also an ideal to access the U.S. drug market. San Pedro Sula is a port city halfway between South America (where cocaine production takes place) and North America, the largest drug market.

Foreign investors demand that governments lower wages, provide tax incentives, lower labor standards, or provide lenient environmental regulations in order to attract their investment.  At the same time, criminal organizations are able to bend judicial systems and law enforcement agencies in order to conduct their businesses. A rapid urbanization emerges with the decline of agricultural production tied to job opportunities in urban areas. In these cases, internal migration constrains social services. For example, housing did not grow synergistically with social services such as schools, public transportation, roads, or hospitals in Ciudad Juárez. Because of a shortage of affordable daycare options and long work shifts, women in Ciudad Juárez usually leave their children alone at home or in the streets, creating an ideal environment for gangs.

Does violence deter foreign investment? Not in these examples. In Ciudad Juárez, export sector jobs increased 30 percent at the same time that 10,500 people were killed from 2008 to 2012, according to Forbes magazine. This year, there were 10,000 new jobs created in San Pedro Sula at the same time that there is an escalating violence in the city. It seems that criminal organizations do not attack large multinationals, and foreign investors can keep their “business as usual.”