The terrorism-finance nexus contingent on globalisation and governance dynamics in Africa

Abstract

This study empirically verifies the effect of terrorism on financial development and how globalisation and governance moderate the incidence of terrorism on financial development in Africa. Two terrorism indicators are adopted for this study, namely, the: number of terrorism incidences and number of terrorism deaths. The methodology involves the pooled data technique running from 1996-2018 for 34 African countries. The results from the POLS, Driscoll-Kraay and the Newey-West standard error corrections show that terrorism is detrimental to financial development. From the interactive regressions, three major tendencies are apparent. First, terrorism dynamics consistently have an unconditional negative effect on financial development. Second, the globalization and governance dynamics moderate the terrorism dynamics to broadly induce a negative net effect on financial development. Third, policy thresholds at which the moderating variables reverse the net effect on financial development from negative to positive are: (i) 82.0000 trade (% of GDP) and 16.2500 FDI (% of GDP) for the incidence of terror and (ii) 1.1685 trade (% of GDP) for terror deaths. The computed thresholds make economic sense and worthwhile in terms of policy implications because they are within statistical range. The result is robust to alternative measures of terrorism and financial development. Implications are discussed.