How Effective is Military Expenditure in the Terrorism and Tourism Nexus? Insights from Africa

Abstract

ABSTRACT: Terrorism has become an alarming issue in Africa due to its potential negative impact on the economy. The escalation of terrorist activities in the region has the capacity to discourage tourists from visiting Africa. This has led to the government increasing military expenditure for counterterrorism with the objective of combating the adverse effects of terrorism on the tourism industry and other sectors of the economy. The purpose of this research is to explore the effectiveness of military spending in offsetting the negative impact of terrorism on tourism in Africa. The study utilized data from 24 African countries between 2001 and 2018 and employed Prais-Winsten regression and Driscoll and Kraay-type Fixed Effects models. Both estimation strategies account for cross-sectional dependence, serial correlation, and heteroskedasticity. The Fixed effect model also accounts for unobserved heterogeneity, which can cause estimation bias when not accounted for. The study also utilizes the first lag of the explanatory variables as instruments for the endogenous variables in the Fixed Effects model to cushion the effect of simultaneity or reverse causality in the modeling. The findings show that both the number of terrorist incidents and the number of terrorist fatalities have negative effects on the number of tourist arrivals into Africa in the absence of military expenditure and when unobservable heterogeneity is considered. Further findings reveal that military expenditure is effective in offsetting the negative impact of the fatalities that arise from terrorism on the number of tourist arrivals in Africa, as revealed by both the interactive and net effects. Additionally, the analysis is expanded using disaggregated tourist data, and the results show that European tourists are more responsive to the use of military expenditure in offsetting the negative impact of terrorism than tourists from America, East Asia, and the Pacific. The policy implication of this study is that African countries must increase military expenditure if they are to effectively offset the negative effect of terrorism on the tourism industry. However, it is also crucial that essential expenditures on education and health are not foregone due to their long run influence on economic development.