How do organized crime and counterfeit interact in Italian trading firms? An empirical analysis of their effects on trade

The impact of crime and counterfeiting on Italian trading firms has been rather neglected. Nevertheless, they are important drivers of trade in countries like Italy, whose economic activity is characterized by small/medium-sized firms, highly exposed to the risk of infringement of intellectual property rights by criminal activities of counterfeiting, and, at the same time, not averse to production/exchange of counterfeited goods. We employ a newly-built regional panel data set that includes both economic variables and indicators of counterfeiting activities and criminality during the period of deep economic crisis (2008-2013). Using a dynamic panel data model, we study how counterfeiting affects trade indicators of the Italian firms. We find that commercial exchanges increase when regions are hubs of production or transit points for fakes. The benefit on trade should not hide the consequences of counterfeiting in terms of loss of private investors’ confidence, limits to business innovation and destruction of competitiveness. We also show that profitable counterfeiting activities that target high-value, high-quality goods, and challenge business innovation and competitiveness of the export-oriented firms, have significant depressing impacts on both export and the degree of trade openness.