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 Basedon 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 Statistics
Multiple R 0.975880941
R Square 0.952343611
Adjusted R Square 0.946736976
Standard Error 1067568507
Observations 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 RegressionLine
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:
Coefficients
Standard
Error t Stat
Intercept -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 Basedon 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 Statistics
Multiple R 0.97541803
R Square 0.951440333
Adjusted R Square 0.945727431
Standard Error 1132252262
Observations 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.

Country
Murders Per
Population GNI Per Capita
Honduras 90 2180
Venezuela 54 12550
Belize 45 4510
El Salvador 41 3720
Guatemala 40 3340
Jamaica 39 5220
Swaziland 34 2990
Columbia 31 7590
South Africa 31 7190
Bahamas 30 21570
United States 4 53470
Saudi Arabia 1 26260
France 1 43460
Denmark 1 61680
Austria 1 50430
Australia 1 65390
Qatar 1 86790
United
Kingdom 1 41680
Iceland 0.4 46400
Japan 0.3 46330
Source: World Bank 2013
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
0 10 20 30 40 50 60 70 80 90 100
GNIPerCapita
Murder Rates Per 100,000
Annual GNI Per Capita And Murder Rates Correlation
Source:WorldBank 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
http://www.rollcall.com/news/confronting_a_crisis_child_refugees_at_our_southwest_bo
rder_commentary-235694-1.html
Crime and Violence in Central America: A Development Challenge. (2011). Document of the
World Bank. Retrieved from
http://siteresources.worldbank.org/INTLAC/Resources/FINAL_VOLUME_I_ENGLISH
_CrimeAndViolence.pdf
Cruz, J. M. (2011). Criminal Violence and Democratization in Central America: The Survival of
the Violent State. Latin American Politics & Society, 53(4), 1-33. doi:10.1111/j.1548-
2456.2011.00132.x
Honey, M., & Gilpin, R. (2009). Tourism in the Developing World. United State Institute of
Peace: Special Report. Retrieved from
http://www.responsibletravel.org/resources/documents/reports/USIP%20Tourism%20in
%20the%20Developing%20World.pdf
The World Bank. (n.d.). Retrieved from http://search.worldbank.org/data?qterm=tourism
Todaro, M., & Smith, S. (2014). Comparative Economic Development. In Economic
development (Twelfth ed., p. 51). Prentice Hall.
United Nations Office on Drugs and Crime, “Homicide Statistics 2012,” Retrieved from
https://www.unodc.org/unodc/en/data-and-analysis/homicide.html

US Department of State, “2012 International Narcotics Control Strategy Report Volume 1: Drug
and Chemical Control,” March 2012. Retrieved from
http://www.insightcrime.org/honduras-organized-crime-news/honduras
World Development Indicators: Mortality. (2014, January 1). Retrieved from
http://wdi.worldbank.org/table/2.21

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