OBJECTIVES: Crime in northern Central America is a public health and societal issue that is common and costly. The region has experienced the highest intentional homicide rates for nearly two decades (2004-2020) at 50 per 100,000 population (The World Bank, World Development Indicators, 2012). The regional concentration of homicidal risk factors includes notorious street gangs (or maras) and their interactions, contiguous factors related to illicit drug trafficking and their spillover effects, economic forces, among others. Outside of economic forces affecting crime, the social forces affecting homicide rates are not well understood and often are unobserved characteristics with a strong spatial dimension. This study investigates the impact of illicit drug price volatility and Purchasing power parity (PPP) adjusted gross domestic product (GDP) per capita on homicide rates per 100,000 individuals in northern Central America.

METHODS: Data on Belize, El Salvador, Guatemala, and Honduras are used in the formation of a two-stage least squares (2SLS) regression model that considers the time-varying omitted variables correlated with the illicit drug price variables that aren’t observable in the model and give about consistent coefficients.

RESULTS: We find economically significant results concerning the price per kilogram of heroin and GDP per capita in determining the rate of homicides per 100,000 residents in northern Central America.

CONCLUSIONS: Intentional homicide rates in northern Central America are partly explained by oscillating heroin prices per kilogram and GDP per capita. Policies aimed at reducing the number of illicit drugs in the region may confer positive and negative externalities, highlighting the need for more innovative solutions to reach the social optimum that maximizes social welfare.