Terrorism and Military Expenditure in Africa: An Analysis of Spillover Effects

Abstract This paper uses a Dynamic Spatial Durbin Model (DSDM) to study the potential spatial spillover effects of terrorism on military spending decisions in Africa. We show that terrorism in the home country as well as in neighbouring countries leads to an increase in military spending (as % of GDP) in the home country. We also find a strategic complementarity in military spending decisions, as an increase in military spending in neighbouring countries has a positive and significant effect on home military spending. As the effects of increased military spending on growth are likely to be negative, our results suggest that terrorism spillover or military spending complementarity can negatively impact a country's growth, even in the absence of direct terrorist attacks.