Impact of Crime on Dubai

Prepared: March, 2025

Author: CEPRODE Legal and Economics Management Team

Dubai's gleaming towers stand as a backdrop to a crime scene. The image highlights the unsettling contrast between prosperity and the threat of violence.

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Abstract

The rise in crimes against individuals in rapidly expanding cities introduces significant risks to both societies and economies, influencing microeconomic and macroeconomic dynamics. This trend can deter economic performance and domestic investment. This study analyzes the impact of crime against a person on domestic investment in Dubai from 1989 to 2021, utilizing the nonlinear autoregressive distributed lag (NARDL) approach to assess both the escalation and contraction of such crimes. The findings reveal an asymmetrical impact of crime fluctuations on domestic investment, with evidence that increases in crime against a person have a negative long-term effect on domestic investment in Dubai.

Keywords: domestic investment, crime against a person, gross domestic product, NARDL, long-run relationship, Dubai

1. Introduction

The economic analysis of crime originated with Becker (1968), who conceptualized crime as an economic activity. Crime presents significant threats at both micro and macro levels, affecting resource allocation, social stability, and economic growth. Key factors influencing crime rates include urbanization, inequality, poverty, youth unemployment, and deficiencies in justice

systems. These factors increase economic and political vulnerabilities, and their impact on crime rates has been widely studied.

Crimes against a person, such as homicide, harassment, assault, and domestic violence, have direct economic consequences. They impair human capital, disrupt investment environments, and can negatively impact tourism and investor confidence. Dubai, recognized as an emerging economy and a global city, has implemented advanced crime prevention initiatives, including AI-driven surveillance and smart home programs, to enhance public safety and attract investment.

Dubai's unique socioeconomic profile-characterized by high living standards, low unemployment, and a diverse expatriate population-provides a distinctive context for examining the relationship between crime and investment. This study aims to fill the gap by focusing on how crime against a person influences domestic investment in such a dynamic urban environment.

2. Literature Review

Economic theories generally frame criminal activity as a rational choice, with individuals weighing potential rewards against risks and costs. Empirical studies across different contexts have found that crime typically has a negative impact on economic growth and investment, although there are exceptions and nuances depending on the type of crime and the economic environment.

For instance, studies in India, Colombia, and South America have shown that higher crime rates, particularly homicide and violent crime, reduce economic growth and deter private investment. Other research highlights the indirect costs of crime, such as reduced human capital accumulation, increased security expenditures, and the diversion of resources from productive activities.

Dubai’s case is notable due to its economic resilience, high security standards, and ambitious efforts to maintain its status as a global investment hub. The city’s focus on leveraging technology for crime prevention and its diverse expatriate population make it an important setting for analyzing the asymmetric effects of crime on investment.

3. Data Description and Descriptive Analysis

This study uses annual time series data from 1989 to 2021. The main variables are:

Domestic investment (gross fixed capital formation) Real gross domestic product (GDP)

Trade openness (total merchandise exports and imports)

Crime against a person (cases reported by Dubai Police and Public Prosecution)

All variables are expressed in natural logarithms to address heteroskedasticity. Data sources include the Dubai Statistics Center, UNCTAD, and Dubai Police.

Variable	Definition	Source
invl	Domestic investment (gross fixed capital formation by economic activity)	Dubai Statistics Center
gdpl	Real GDP (2010=100, local currency)	Dubai Statistics Center
tral	Trade opennes (exports & imports)	UNCTAD
crpl	Crime against a person	Dubai Police HQ & Public Prosecution

Descriptive Statistics (1989–2021)

Statistic	Inv	GDP	Tra	Crp
Mean	48,818.27	201,141.0	38,212.12	1,772.85
Median	37,802	140,200	23,544	1,620
Maximum	136,339	432,347	178,630	2,973
Minimum	7,942	31,764	7,218	1,198
Std. Dev.	37,188.49	158,694.7	40,154.55	504.18

Figure 1. Variables Data Diagram

4. Methodology

The study employs the nonlinear autoregressive distributed lag (NARDL) model, which allows for the estimation of both symmetric and asymmetric effects of crime against a person on domestic investment. This approach is advantageous because it can capture the different impacts of increases and decreases in crime rates, unlike traditional ARDL or cointegration models.

The NARDL model decomposes the crime variable into positive and negative changes, enabling the estimation of their separate effects on investment. The model specification includes lag selection, unit root tests, estimation of short- and long-term coefficients, and Wald tests for asymmetry.

5. Empirical Results and Discussion

The results indicate that fluctuations in crime against a person have an asymmetrical impact on domestic investment in Dubai. Specifically, increases in crime rates exert a significant negative effect on domestic investment, while decreases in crime do not produce an equally strong positive effect. This asymmetry suggests that investor confidence is more sensitive to rising insecurity than it is to improvements in security.

The findings are consistent with international literature, which shows that crime can deter investment by increasing uncertainty and perceived risk. In Dubai’s context, the city’s proactive crime prevention strategies and technological innovations have likely mitigated some negative effects, but the deterrent impact of rising crime remains significant.

6. Conclusions and Policy Implications

This recent study has revealed that fluctuations in crimes against individuals have a pronounced and asymmetric impact on domestic investment in Dubai, one of the world's fastest-growing megacities. Employing the nonlinear autoregressive distributed lag (NARDL) model, researchers analyzed data spanning from 1989 to 2021 to assess how both increases and decreases in personal crime rates influence economic activity within the emirate.

The findings demonstrate a robust, statistically significant long-term equilibrium between crime rates and domestic investment. Specifically, the study identified a −0.90 coefficient for the speed of adjustment in the error correction term, underscoring the strength of this relationship. Positive and negative shifts in crime against individuals were found to have differing effects on investment, as confirmed by the asymmetric bounds test developed by Shin et al. (2014) and the Wald test. Long-term estimates indicate that higher rates of crime against individuals are associated with a decline in domestic investment. Notably, the partial sum squares of the long-run asymmetric coefficients showed negative and positive changes of −0.6% and 0.5%, respectively, highlighting an inverse proximity effect on investment flows.

These results align with a growing body of international research linking crime to economic variables, suggesting that persistent threats to personal security can deter both private and institutional investors. In Dubai, where the economy is heavily reliant on tourism and its global reputation as a safe, stable destination, any uptick in violent crime risks undermining investor confidence, reducing tourism revenues, and triggering broader economic repercussions. A less secure environment may also make it more difficult to attract and retain skilled professionals, further constraining economic growth.

The study emphasizes the need for Dubai Police and policymakers to sustain and enhance crime prevention efforts, particularly through the deployment of advanced technologies and artificial intelligence. Such measures are deemed essential not only for maintaining public safety but also for safeguarding the emirate’s attractiveness as an investment hub. The research suggests that these insights are relevant for other cities in the UAE, such as Abu Dhabi, and calls for greater collaboration among security policymakers to achieve a zero-tolerance approach to crimes against individuals.

Additionally, the analysis found that both positive and negative changes in GDP have asymmetric, but overall positive, effects on domestic investment. A decline in GDP prompts increased government spending to compensate for reduced private investment, while economic growth encourages both public and private sector investment. Trade openness was also shown to have a positive, asymmetric relationship with domestic investment, reinforcing Dubai’s status as a leading global trade hub.

The study concludes by recommending further research into the interplay between crime, domestic investment, and other economic variables, including financial sector dynamics and business creation or closure. It also advocates for the development of new economic risk measures to better assess the impact of crime on investment decisions in emerging economies.