Military Expenditure, Terrorism and Capital Flight: Insights from Africa

African Governance and Development Institute WP/16/018

33 Pages Posted: 28 Jun 2016

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Joseph Amankwah-Amoah

University of Bristol - School of Economics, Finance and Management

Date Written: June 25, 2016

Abstract

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 reduces the effect of terrorism stemming from capital flight remains largely underexplored. We employed a panel data of 37 African countries from 1996-2010 and determined 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 to 7.363 for unclear terrorism and 4.710 to 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 effects of terrorism stemming from capital flight. Implications for public policy are discussed.

Keywords: Capital flight; military expenditure; terrorism; Africa

JEL Classification: C50; D74; F23; N40; O55

Suggested Citation

Asongu, Simplice and Amankwah-Amoah, Joseph, Military Expenditure, Terrorism and Capital Flight: Insights from Africa (June 25, 2016). African Governance and Development Institute WP/16/018. Available at SSRN: https://ssrn.com/abstract=2800655 or http://dx.doi.org/10.2139/ssrn.2800655

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Joseph Amankwah-Amoah

University of Bristol - School of Economics, Finance and Management ( email )

United Kingdom

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