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Terrorism and investment in Africa: Exploring the role of military expenditure

Author

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  • Iheonu Chimere O.

    (University of Nigeria, Department of Economics, Nsukka, University Road, Enugu 410001, Nigeria)

  • Ichoku Hyacinth E.

    (University of Nigeria, Department of Economics, Nsukka, University Road, Enugu 410001, Nigeria)

Abstract

The aim of this study is to investigate the influence of military expenditure on the relationship between terrorism and investment in twenty-four African countries for the period 2001 to 2018. The study utilizes fixed effects regression with Driscoll and Kraay standard error and cushions the effect of simultaneity and reverse causality using the lags of the regressors as instruments. The empirical results reveal the negative effect of terrorism on both domestic investment and foreign direct investment (FDI). The study further reveals a negative net effect of military expenditure on the relationship between terrorism and investment. Furthermore, it was discovered that a threshold of 2% to 5% of military expenditure in GDP is required for military expenditure to offset the negative effect of terrorism on FDI. The study recommends that counter-terrorism initiatives be tailored more towards inclusive growth policies, increasing access to education, and improving the quality of governance.

Suggested Citation

  • Iheonu Chimere O. & Ichoku Hyacinth E., 2022. "Terrorism and investment in Africa: Exploring the role of military expenditure," Economics and Business Review, Sciendo, vol. 8(2), pages 92-112, July.
    • Handle: RePEc:vrs:ecobur:v:8:y:2022:i:2:p:92-112:n:4
    DOI: 10.18559/ebr.2022.2.6
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    References listed on IDEAS

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    1. Uchenna, Efobi & Asongu, Simplice & Ibukun, Beecroft, 2015. "Foreign Direct Investment, Aid and Terrorism: Empirical Insight Conditioned on Corruption Control," MPRA Paper 67304, University Library of Munich, Germany.
    2. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    3. Chimere O. Iheonu, 2019. "Governance and Domestic Investment in Africa," Working Papers 19/001, European Xtramile Centre of African Studies (EXCAS).
    4. Hashmat Ali & Wang Qingshi & Irfan Ullah & Zulfiqar Ali, 2017. "How Terrorism Affects Foreign Direct Investment in Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 625-631.
    5. Imtiaz Arif & Tahir Suleman, 2017. "Terrorism and Stock Market Linkages: An Empirical Study from a Front-line State," Global Business Review, International Management Institute, vol. 18(2), pages 365-378, April.
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    More about this item

    Keywords

    terrorism; military expenditure; domestic investment; FDI;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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