Mitigating capital flight through military expenditure: insight from 37 African countries

The purpose of this study is to assess the thresholds at which military expenditure modulates the effect of terrorism on capital flight. We employed a panel data of 37 African countries from 1996 to 2010. The empirical evidence was based on: (i) baseline contemporary and non-contemporary OLS, (ii) contemporary and non-contemporary fixed effects regressions to account for the unobserved heterogeneity, (iii) the Generalised Method of Moments to account for the capital flight trap and (iv) Quantile Regressions (QR) to account for initial levels of capital flight. The study found that the thresholds are apparent exclusively in Quantile Regressions with military expenditure thresholds ranging from: 4.224 to 5.612 for domestic terrorism, 5.734–7.363 for unclear terrorism and 4.710–6.617 for total terrorism. No thresholds are apparent in transnational terrorism related regressions. Depending on the terrorist target, the findings broadly show that a critical mass of between 4.224 and 7.363 of military expenditure as a percentage of GDP is needed to reverse the negative effect of terrorism on capital flight. In spite of the growing consensus of the need to utilise military expenditure to help combat terrorism, our understanding of the threshold at which military expenditure completely dampens the negative effect of terrorism on capital flight remains largely underexplored. We capitalize on panel data of 37 African countries to address this lacuna in our understanding of this important issue

The Impact of Terrorism on Governance in African Countries

This study investigates how terrorism affects governance in 53 African countries for the period 1998–2012. Four terrorism indicators are used namely: domestic, transnational, unclear, and total terrorism. Ten bundled and unbundled governance indicators are also employed namely: political governance (consisting of political stability and voice and accountability), economic governance (encompassing government effectiveness and regulation quality); institutional governance (entailing corruption-control and the rule of law), and general governance. The governance indicators are bundled by means of principal component analysis. The empirical evidence is based on Generalized Method of Moments. Three key findings are established. First, all selected terrorism dynamics negatively affect political governance and its constituents. Second, evidence of a negative relationship is sparingly apparent in economic governance and its components. Third, no proof was confirmed in relation to the impact of terrorism and institutional governance with its elements. Fourth, compared with domestic terrorism, transnational terrorism more negatively and significantly affects political, economic, and general governances. Policy implications are discussed