Political instability and inflation volatility in West Africa countries: does terrorism have an impact?

Macroeconomic stability is essential for sustainable economic and social development. This stability requires a reduction in inflation and the elimination of its volatility. This study investigates the effects of political instability on inflation volatility in West Africa countries between 2000-2022. Using advanced econometric techniques, such as system GMM and 2SLS, the analysis explores the impact of various political instability variables on inflation volatility. The results show that political instability positively affect inflation volatility in West Africa. This positive effect is strongest for the number of terrorist attacks, followed by military interference in politics and the global terrorism index. Specifically, our results show that at the WAEMU level, only military interference in politics and the number of terrorist attacks have a positive and significant impact on inflation volatility. This positive impact is also greater for the number of terrorist attacks than military interference in politics. These results underscore the importance of strengthening institutional quality and governments’ capacities to respond appropriately to threats that could undermine political stability. It is also essential for States to strengthen their collaboration in the fight against terrorism, in order to limit political instability caused by terrorism in the sub-region and its impact on macro-economic stability.