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

This paper uses a Dynamic Spatial Durbin Model (DSDM) to study potential spatial spillover effects of terrorism on military spending. We show that terrorism in the home country as well as in neighboring countries lead to an increase in military spending (as % of general government expenditure) in the home country. We also find a strategic complementary in military spending decisions, as an increase in military spending in neighboring 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 indicate that terrorism spillover or military spending complementarity can negatively impact a country’s growth, even in the absence of direct terrorist attacks