The Effect of Tourism and Murder Rates on the Honduran Economy

Running head: EFFECTS ON HONDURAN ECONOMY 1

The Effect of Tourism and Murder Rates on the Honduran Economy

Devan Gamble

Ariel Duhart

Daizsa Preston

ECON 3313

Dr. Lawrence McNeil, Professor

Prairie View A&M University

Submitted April 14, 2015

EFFECTS ON HONDURAN ECONOMY 2

Introduction

The murder capital of the world, in Honduras staying alive is a difficult task in its self.

The most murderous violent crime ridden country in Central America, Honduras cannot seem to

escape the grasp of extreme poverty. In order for Honduras to make significant economic

progress the citizens must first secure a sense of safety. The country of Honduras is riddled with

gang violence, and is a hotbed for the transnational drug trade. Historically the country has been

and continues to be a casualty of the ongoing war on drugs.

Tourism being ranked as the fourth largest industry in the world is an important factor for

the majority of economies. Countries showcase their beautiful cultures and natural wonders to

foreigners as a primary source of income. Tourism has the power to spearhead economic growth

within many economies. The central American region is rich in culture and tradition and has a

storied past, but the lack of safety in the country of Honduras has hindered the tourism of the

country as of late.

The examination of the Honduran economy shows a correlation between extremely high

murder rates, tourism, and a lack of GNI and GDP growth within the country. The murder rates

in Honduras have always been alarmingly high; however in the past couple of years there rank

has far surpassed that of any other country. When compared to the current murder rates of more

developed countries, such as America and Great Britain, it is hard not to consider these rates to

be one of the leading factors in economic growth or stagnation in Honduras.


Tourism and its Effect on GDP Based on Secondary Research

According to the United States Institute of Peace, tourism is a very important part of the

economy and is ranked as the fourth largest industry in the world. The tourist industry generates

approximately $1 trillion in revenue that contributes to the global economy (Honey, 2009).

There are various benefits that come with having a sustainable tourist industry in a country.

Consumers that visit a country consume goods that directly benefit the provider of the goods or

the community that they are visiting. Poor countries can use their culture as a source of income

to attract tourists, and various business operations are intertwined and as a result, jobs are

created. The government is also willing to invest in the development of infrastructure and other

ventures that cater to foreign visitors. All of these factors ultimately lead to growth of GDP in a

country.

GDP in Honduras

The GDP in Honduras is composed of consumption expenditures, business investment,

government spending and net exports of goods and services that are both conducted domestically

and internationally. The GNI, however, is composed of the same components but conducted

domestically by domestic companies or international companies. With the data provided by the

World Bank, in the past 20 years there has been a steady increase in the gross domestic product

of Honduras, which averages out to be $9.6 million. Gross national income however has had a

slower rate of growth over the past 20 years with an overall average of $9,137,011,641 (World

Bank, n.d.). It is believed that tourism is positively correlated with economic growth and that the

increase in international tourism leads to the ultimate increase in gross domestic product and

gross national index.

GNI in Honduras


The independent variables for our analysis are murder rates and tourism rates annually.

These variables proved to have a profound effect on the independent variable of GNI. The reason

murder rates was chosen was because we believed the lack of growth in the country of Honduras

was due to the high number of murders in the country. The increase in tourism helped to slightly

offset the high murder rates. Below is the summary output of GNI in Honduras:

Regression StatisticsMultiple R 0.975880941R Square 0.952343611Adjusted R Square 0.946736976Standard Error 1067568507Observations 20

The murder rates had a t-stat of six point five while tourism had a t-stat of seventeen

point seven eight, which lets us know the data is acceptable. The R-squared of our data is point

ninety-five telling us that for every percentage change in GNI it is ninety five percent due to the

combination of our independent variables. The combination of murder rates and tourism is

shown to comprise a significant amount of the changes in the countries GNI. With a coefficient

of 18,932 if there were no economic activity in the country besides tourism they would stand to

earn 18,932. Without any murders the data proved to be inconclusive I feel this was due to the

extractive nature of the murders and the negative affects it places on the countries GNI.

Tourism in Honduras

According to the data provided by the World Bank that was utilized in our analysis,

tourism in Honduras is calculated by foreign visitors per year or better known as annual tourist

arrivals. In 1993, the annual tourist arrival was at 271,000 whereas in comparison the annual

tourist arrival in 2012 was 895,000. Over the span of 20 years the tourist arrival has substantially


increased. Honduras has an overall average of 630,400 annual tourist visits within 20 years. In

1994, the country experienced a slight decline in annual tourist, and then in 2007, a larger

decline of approximately 33,000 less tourist visits than 2006 (World Bank, n.d.). We suspect

that one of the factors of the rise and decline in the number of tourist arrivals are due to the

shockingly high murder and homicide rates in the country of Honduras. Which could be causing

a fear of travel for outsiders looking to experience all that Honduras has to offer.

The Correlation of GDP and Tourism in Honduras According to our Regression Line

With our data we constructed a regression table, and developed an equation:

GDP = ∝+β1 ( M )+β2 (T )+ε

In this case, the annual tourist arrivals (T) are one of our independent variables while

GDP is our dependent variable. Our α represents where our dependent variable would be if our

independent variable were at 0. In other words, where our GDP would be is there were no annual

tourist arrivals. According to our regression for every single tourist arrival it produces $19,800 in

gross domestic product. This means that Tourism and GDP are well correlated; this is supported

by our t-Stat of 17.53. Also we have (M) which represents the effects or murder rates as an

independent variable. This correlation came out on the regression as benefiting the GDP at

$99.3, obviously not a good representation of accuracy. However the t-Stat shows a correlation

of 6.68, which we believe to be a good representation of a correlation. In conclusion, the increase

in tourism leads to a correlated increase in GDP, whereas the increase in murder rates data

maybe skewed. Illustrated below is a copy of a section of our regresion:

CoefficientsStandard

Error t StatIntercept -9665536007 1261172525 -


7.663928462

Murders per 100,000 people 99300717.51

14857637.58

6.683479588

Annual Tourists Arrivals 19800.09977 1129.46781

17.53046842

Murder Rates and its Effect on GDP Based on Secondary Research

According to scholarly article Crime and Violence in Central America: A Development

Challenge, provided by the World Bank, murder rates are ultimately going to lead into a decline

in productivity in a country. There are several growth costs that come with the increase of crime

and violence. One major cost is more resources toward crime prevention instead of a more

productive aspect of the economy. According to the World Bank, health costs such as medical

attention, lost production, and emotional damage make up only 3.9% of the country’s GDP.

Institutional costs including public security and administration of justice make up 2.6% of

Honduras’s gross domestic product (Crime and Violence in Central America: A Development

Challenge, 2011). The government will have to invest more funds into these aspects of the

economy to lead to development and reduce the murder and homicide rates.

Murder Rates in Honduras

Honduras has held the world’s highest murder rates over the past few years. The murder

rate in Honduras has been uncontrollable due to a lack of resources within the government and a

weak judicial system. Most of these cases await trial for over a decade or never make it to trial.

The situation has reached a point where countries, including the U.S., have issued travel

warnings due to an increase in homicides of U.S. citizens and others. The murder rate in

Honduras is one of the top constraints to the countries to productive growth but also one of the

top three policy priorities to improve the countries productivity. As a policy priority to reduce the


crime and the movement to develop sufficient resources that try to relief the victims of the cruel

crime rate, these revenues are contributing the growth in GDP despite the damage it has done to

the country in a social aspect.

The Correlation of Murder Rates and GDP in Honduras According To Our Regression Line

With our second variable being the murder rate in Honduras we use the same regression

equation:

GDP = ∝+β1 ( M )+β2 (T )+ε

In our constructed regression table, our second independent variable is the murder rate in

Honduras. These numbers were retrieved from the World Bank. For every murder rate, there is

an increase in GDP, illustrating that there is a positive correlation between the two factors. It is

also safe to state that murder rates and GDP have a causal relationship. Only from 1993 to 1998,

Honduras experiences a steady decline in the number of murders in the country, in correlation

the GDP steadily increases at the same rate, at this time frame the murder rate seems to be at its

highest point, and as a result the tourism arrivals also sharply decline (World Bank, n.d.). Below

is the summary output of gross domestic product in Honduras:

Regression StatisticsMultiple R 0.97541803R Square 0.951440333Adjusted R Square 0.945727431Standard Error 1132252262Observations 20


Our data consists of 20 observations measure in years of the gross domestic product. With an

overall R squared of 0.95 there is a huge attribution of GDP growth in regards to murder rates

and tourism in Honduras.

Reasons for Crime in Honduras

Honduras is one of the poorest countries in Latin America, and the region’s most violent

crime infested country. This is mainly due to its role as an important distribution point for

transnational drug cartels. The country is plagued by political turmoil, macroeconomic shifts,

endemic poverty, and corruption. The schools are dominated by gangs, often times the students

force the teachers to pay money through intimidation or the teachers will not be allowed in

classrooms. There are two main gangs that are currently harping the economic development of

Honduras the MS 13 and Barrio 18 gangs. These gangs extort everyone in their community all

whilst charging the residents their own gang tax regardless of economic status. Through

corruption of government officials and business elites, various methods of extortion, and a vast

number of intimidation tactics these gangs along with Mexican and Columbian drug cartels are a

few of the reasons Honduras cannot escape poverty. Political instability has plagued the nation

for decades Insight crime had this to say.

“In recent years, transnational criminal groups, particularly Mexican cartels, have

expanded their presence in Honduras. The 2009 coup that ousted President Manuel

Zelaya and caused international outrage also exacerbated instability in the country.

Colombian drug trafficking gangs changed their routes to Honduras just days after the

coup and turned it into the principal handover point for cocaine to Mexican

cartels.”(UNODC 2012)


Honduran Murder Rates Compared to the World

Honduras has alarmingly high murder rates. The Central American region has always

been notorious for violent crimes, however as of recently the murder rates of Honduras have

made the country the most violent region on the planet. The country currently boasts the world’s

highest murder rate which is ninety murders out of every 100,000 residents, with its worst city

being that of San Pedro Sula whom has one hundred seventy-three murders per 100,000. To put

this in perspective the second closes country is Venezuela with fifty-three murders per 100,000,

and the United States currently rests at five murders per 100,000. In total Honduras had 7,172

murders in 2012, with a population of 7.6 million if Honduras had the 314 million people the

United States has their yearly murder total would have been roughly 283,856. Honduras’ murder

rate is fifteen times the world average and twenty times the United States average. These

Statistics show a chilling tale; Claude Fontheim and Rep. Joe Garcia had this to say about the

measures that need to be taken for economic development in that region to ensue.

A comprehensive economic plan to address the deadly combination of extreme violence

perpetrated by ruthless gangs, ineffective law enforcement and inadequate administration

of justice, and unacceptably high poverty levels in Central America... Toward this end,

we recommend greatly expanded capacity building assistance to enable market-based

economic development that promotes the establishment of a reliable legal and judicial

system, transparent and effective government, infrastructure upgrades that enhance trade

and competition, as well as investments in education and healthcare. Security, economic

development, and an effective legal and judicial system go hand-in-hand. These countries

need a holistic approach that addresses all three. (Fontheim 2011)


Possible Ways to end Crime in Honduras

If Honduras could find a feasible approach to extract these gangs and corrupt politicians,

while developing some level of political stability the country could hope to make steps towards

development. By offering quality education to the youth before the gangs obtain their grasp on

the individuals the country may be able to protect future generations. If these gang members had

any fear of the legal and judiciary system in their country the criminals may be more hesitant to

engage in violent extractive acts. Honduras borders three countries and two bodies of water

making the country very accessible for vast amounts of trades with many nations, which could

ultimately benefit Honduras. The same borders often serve a very nefarious purpose by giving

criminal groups a virtually endless stream of entry points into the country from numerous

directions, the security of the country’s borders must be more stringent. These suggestions

coupled with an inclusive government structure, would help facilitate a growth in infrastructure,

an enhanced competitive ability on a global scale, and a more prevalent trading power.

There is a correlation between income and murder rates the richer countries tend to have

lower murder rates than poorer nations. United Nations Office on Drugs and Crime (UNODC)

had this to say in their study about the correlation between poverty and high rates of violent

crime.

Countries with wide income disparities are four times more likely to be afflicted by

violent crime than more equitable societies. Conversely, economic growth seems to stem

that tide, as the past 15 years in South America have shown. High levels of crime are

both a major cause and a result of poverty, insecurity and underdevelopment. Crime

drives away business, erodes human capital and destabilizes society. Targeted actions are


needed. "To achieve the Millennium Development Goals, crime prevention policies

should be combined with economic and social development and democratic governance

based on the rule of law," says UNODC Executive Director Yury Fedotov. According to

the Study, sudden dips in the economy can drive up homicide rates. In selected countries,

more murders occurred during the financial crisis of 2008 and 2009, coinciding with

declining gross domestic product (GDP), a higher consumer price index and greater

unemployment. (US Department of State 2012)

Upon examination of murder rates in poorer nations compared to rich developed ones it is clear

that the more violent crimes a nation endures hinders the growth and stability of the nation’s

economy. Nations such as the United States, Great Britain, China, Japan, and the Scandinavian

region are amongst the richest and most powerful economic entities in the world. Historically

these regions also have amongst the lowest murders rates. On the other hand the poorest regions

such as the Latin Americas and West African countries have the highest poverty rates as well as

highest rate of violent crimes in the world. Honduras being the world’s murder capital has

negatively affected the country’s economic standing for decades currently the country rests at

one hundred sixty fourth based on countries GNI per capita PPP. The lack of political stability is

apparent throughout Latin America, but in no place has this been more prevalent than in the

country’s second largest and also the most dangerous city on the planet San Pedro Sula. The city

of San Pedro Sula is the world’s most murderous city totaling one hundred seventy three murders

per 100,000 with ninety-seven percent of these murders going on this is a city in crisis. In

Honduras people often face their mortality on a daily basis; hoping to survive if the basic need of

survival is unobtainable the country cannot even begin to shift their focuses to the economy.

The Importance of the Human Development Index


There are many things to consider when examining why it is important to take a glance at

the human development index (HDI) of a nation while doing a regression. To understand how

this index plays into the progression of a nation, one must understand what this index is. The

HDI is “an index measuring socioeconomic development, based on combining measures of

education, health, and adjusted real income per capita,” as stated by Todaro (2015). There are

many factors that go into the human development index (HDI). All of which are contributing

factors that we are examining such as GNI, murder rates, and tourism. The HDI in itself is a

means of measuring the status of a country in regards to its ranking among 187 different

countries. Although Honduras has been at the stagnant status of medium human development

they are slowly moving up in regards to rankings from an initial HDI of 0.542 in 1995 to 0.616

in 2012. Although the factors of tourism or murder rates don’t directly correlate to education

they do have a vast effect on health, or life expectancy rather, and adjusted real income. When

looking at murder rates the various years in which a typical Honduran would expect to live based

on the threat of possibly being murdered would have an adverse effect on the overall life

expectancy of the nation as a whole.

Murder Rate Statistics Impact on HDI

Currently the nation is standing at an average of 4206.76 murders in the past 20 years. In

fact, “Guatemala, Honduras, and El Salvador have homicide rates that double or triple the Latin

American average, which itself is considered very high”(Cruz, 2011, p. 2). This was inferred

roughly 6 years ago when Honduras’ murder rates were a mere 5281.29 per population compared

to a more recent 7174.14 per population. This is a huge spike for any country especially one

whose overall population did not exceed 8 million as of 2012. However the overall life

expectancy stands at roughly 73 years which is a steady increase of almost 10 additional years of


life throughout the past couple of decades. This in part could be due to the advances in

technology and/or medicine along the years.

Tourism in Honduras

The higher crime rates in places such as Honduras also have a negative effect on the

people outside of this country that may want to explore the beauties of this tropical land. A

decline in tourism would have a negative effect on income being brought into the country seeing

as there is an overall average of 12.6 million tourist arrivals in the past 20 years bringing in an

overall 392.4 million in income as calculated based on information documented by the World

Bank. This amount is roughly 2.28 percent of the overall GNI. By looking at other countries such

as the Bahamas one could see how the effects of tourist could advance or hinder the overall

economic growth of a country. The Bahamas uses tourism alone as a means for selling goods

they produce and even employing those within the country to produce various paraphernalia or

simply to work as tour guides, or whatever the case may be. In fact looking at how tourism is

defined the effects of tourism on any particular country makes absolute sense.

The Effects of Tourism on a Nation

Tourism is defined as “a movement in the direction of increasing world economic

integration through the reduction of natural and human barriers to exchange and increase

international flows of capital and labour.”(Chia-Lin, Khamkaew, McAleer, & Tansuchat, 2010,

p. 161) The ‘flow of capital” is the most impactful portion of this description seeing as an

increase in monetary value is the motivation for most if not all countries, regardless of the

means. Chia-Lin, ET. Al.(2012) give A prime example as to why developing countries use

tourism as a means for economic development would be as followed, “with limited opportunities


for local public sector funding, these countries have been offered funding by international

development organizations or international companies to make themselves more attractive as

tourism destinations.” Regardless of the effects of tourism on the HDI however there are other

factors that go into overall economic growth of a country. According to Adam Smith imports

help promote a sense of wealth creation which in some cases tourism can be looked at as a sense

of personal import exchange, when considering the things tourist will buy on the trip and take

back home with them.

What Honduras Has to Offer

Alongside tourism, a major means of exportation that Honduras uses a means of

monetary stimulation would be its agricultural attributes that Honduras has to offer. With it being

a more tropical area there are a lot of plants, fruits, and vegetables that cannot easily be produced

in other countries which puts Honduras at a comparative advantage to produce certain items than

it would in other countries. Also there are certain items such as clothing that may be produced in

other countries but it’s easier to produce in Honduras, this helps out the overall GNI of the

country as a whole. Businesses such as Altia Business Park use Honduras as a spot for their

telecommunications because of their bilingual background. Especially seeing as Spanish is one

of the largest languages in the country raging through various nations. All and all the effects of

tourism and murder are huge factors on the gross domestic product and gross national incomes of

Honduras there are still other attributing factors to consider.


CountryMurders Per Population GNI Per Capita

Honduras 90 2180Venezuela 54 12550Belize 45 4510El Salvador 41 3720Guatemala 40 3340Jamaica 39 5220Swaziland 34 2990Columbia 31 7590South Africa 31 7190Bahamas 30 21570United States 4 53470Saudi Arabia 1 26260France 1 43460Denmark 1 61680Austria 1 50430Australia 1 65390Qatar 1 86790United Kingdom 1 41680Iceland 0.4 46400Japan 0.3 46330Source: World Bank 2013

0 10 20 30 40 50 60 70 80 90 1000

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

Annual GNI Per Capita And Murder Rates Correlation

Murder Rates Per 100,000

GNI P

er C

apita

Source: World Bank 2013


References

Chia-Lin, C., Khamkaew, T., McAleer, M., & Tansuchat, R. (2010). A Panel Threshold Model

of Tourism Specialization and Economic Development. International Journal of

Intelligent Technologies & Applied Statistics, 3(2), 159-186.

Claude Fontheim & Rep. Joe Garcia in Roll Call on humanitarian crisis, capacity building, and

response at the source: Retrieved from

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World Bank. Retrieved from

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Cruz, J. M. (2011). Criminal Violence and Democratization in Central America: The Survival of

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%20the%20Developing%20World.pdf

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Todaro, M., & Smith, S. (2014). Comparative Economic Development. In Economic

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United Nations Office on Drugs and Crime, “Homicide Statistics 2012,” Retrieved from

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US Department of State, “2012 International Narcotics Control Strategy Report Volume 1: Drug

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http://wdi.worldbank.org/table/2.21

Documents

The Effect of Tourism and Murder Rates on the Honduran Economy