To What Extent Does Military Expenditure Mitigate the Effect of Terrorism on Economic Complexity in Europe?

ABSTRACT This study examines how military expenditure moderates the negative effect of terrorism on economic complexity in Europe. Terrorism is proxied by terrorism‐related incidences, fatalities, injuries, and hostages. The study utilizes a panel dataset comprising 33 European economies spanning the period 2011–2022. The primary empirical strategy employed is the Bias‐Corrected Method of Moments (BCMM), which effectively addresses potential estimation biases, including cross‐sectional dependence, endogeneity, and heterogeneity. The findings reveal a consistently negative impact of terrorism on economic complexity in Europe. Furthermore, a 2.000 threshold level of military expenditure (% GDP) and 4.000 threshold level of military expenditure (% of general government expenditure) will mitigate the negative effects of terrorism fatalities on economic complexity. On the basis of the study's findings, it is recommended to reassess the efficiency of military expenditures in Europe, with surplus funds redirected toward innovation‐driven sectors. In addition, policymakers and leaders in Europe should join forces through the Council of Europe (CoE) and the European Union (EU) to tackle the detrimental effects of terrorism on the continent. Related Articles Cinalli, M., and M. Giugni. 2016. “Collective Responses to the Economic Crisis in the Public Domain: Myth or Reality?” Politics & Policy 44, no. 3: 427–446. https://doi.org/10.1111/polp.12156 . Lahusen, C., M. Kousis, J. Kiess, and M. Paschou. 2016. “Political Claims and Discourse Formations: A Comparative Account on Germany and Greece in the Eurozone Crisis.” Politics & Policy 44, no. 3: 525–552. https://doi.org/10.1111/polp.12162/abstract . Zamponi, L., and L. Bosi. 2016. “Which Crisis? European Crisis and National Contexts in Public Discourse.” Politics & Policy 44, no. 3: 400–426. https://doi.org/10.1111/polp.12156 .