Studies in Economics and Econometrics

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International trade impediments in Africa: is

terrorism also in the dock?

Guivis Zeufack Nkemgha, Kone Ibouanga & Kouladoum Jean-Claude

To cite this article: Guivis Zeufack Nkemgha, Kone Ibouanga & Kouladoum Jean-Claude (2023):
International trade impediments in Africa: is terrorism also in the dock?, Studies in Economics
and Econometrics, DOI: 10.1080/03796205.2023.2250566

To link to this article: https://doi.org/10.1080/03796205.2023.2250566

Published online: 31 Aug 2023.

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STUDIES IN ECONOMICS AND ECONOMETRICS
https://doi.org/10.1080/03796205.2023.2250566

International trade impediments in Africa: is terrorism

also in the dock?
Guivis Zeufack Nkemghaa , Kone Ibouangab and Kouladoum Jean-Claudec
a
University of Bamenda, Bamenda, Cameroon; bUniversity of Omar Bongo, Libreville, Gabon;
Universit
e de Moundou, Moundou, Chad
c

ABSTRACT ARTICLE HISTORY

Despite the abundant literature on the consequences of terrorism, Received 7 August 2022
little is known about the relationship between terrorism and inter- Revised 14 July 2023
national trade, particularly in Sub-Saharan Africa (SSA). The pur- Accepted 14 August 2023
pose of this article is to fill this literature gap by assessing how
KEYWORDS
terrorism affects international trade using a panel data of 24 Terrorism; international
countries over the period 2000–2020. This article applies different trade; governance; SSA
techniques such as ordinary least squares, fixed effects, Quantile
Regression and the System Generalised Method of Moments. The JEL CLASSIFICATION
results show that terrorism is an important determinant of inter- F13; F19
national trade in SSA. Across a number of specifications, the
results reveal that terrorism is also guilty of trade delay.
Furthermore, the results show that governance is a potential
channel through which terrorism transits to exert its harmful
effect on international trade in SSA countries.

1. Introduction
Acts of terrorism correspond to serious offences whose spectacular modus operandi always
betrays the desire to make a strong impression on people’s minds. The most common are
bombings (sometimes suicide bombing), assassination, kidnapping, hostage taking, hijack-
ing and destruction of aircraft (possibly suicide bombing), armed robbery, mutilation or
arson. Moreover, Bandyopadhyay et al. (2014) define terrorism as: “the premeditated use or
threat to use violence by individuals or subnational groups against non-combatants to
achieve a political or social objective through the intimidation of a large public”. For Aron
(1961) in his work entitled “Peace and war between nations”, the term “terrorism” is “an
action of violence whose psychological effects are out of proportion to the purely physical
results”.
The rising threat of terrorism is a serious cross-border threat that is gaining ground on
the African continent. Tunisia, Algeria, Egypt, Libya, Mali, Nigeria, Cameroon, Chad, Niger,
Somalia, and Kenya were all victims of terrorism during 2015. This is proof that Africa is
becoming the hub of transnational terrorism. All the chapels are represented there: behe-
moths of the Salafist galaxy (Al-Qaeda and Daesh which operate through franchises such
as Boko Haram, Al-Shebab, AQIM, Al-Mourabitoune, Jund Al-Khalifa, Ansar Baït Al-Maqdi,

CONTACT Guivis Zeufack Nkemgha [email protected] University of Bamenda, Bamenda,

Cameroon
ß 2023 Stellenbosch University
2 G. ZEUFACK NKEMGHA ET AL.

Ansar Al-Sharia, Oqba Ibn Nafaa, etc., established in the Maghreb, the Sahel and the Horn
of Africa) to terrorism start-ups seeking international stature. The emergence of centres of
extremism in Senegal, as well as the attacks in Ouagadougou (Burkina Faso) and Grand-
Bassam (Co ^te d’Ivoire), reveal the extent of the threat posed by terrorist movements to
African States, and which could plunge the entire continent into a spiral of extremist vio-
lence (Nkalwo Ngoula, 2016).
At the regional level, conflicts pose an additional problem because of the risks of reper-
cussions. Conflicts can spread to neighbouring countries, with direct repercussions (Hegre
and Sambanis, 2006), but also have indirect repercussions: the slowdown in economic
activity (for example, under the effect of increased uncertainty or disruption of trade) or
the emergence of social pressures (due, in particular, to the massive influx of refugees) in
neighbouring countries, even when these countries are not taking part in the conflict
(Gomez, Christensen, Araya, & Harild, 2010; Murdoch and Sandler, 2002; Qureshi, 2013).
Therefore, a study of the literature concerning this use of economic attacks to achieve
terrorist objectives has been given by Jackson, Victoria and Greenfield (2007). The macro-
economic consequences induced by terrorism on the gross domestic product (GDP) and
economic growth have been identified (Blomberg, Hess, & Orphanides, 2004; Gaibulloev &
Sandler, 2009, 2011). Losses due to terrorism at the sectoral level have been documented
for tourism (Drakos & Kutan, 2003), foreign direct investment (Bandyopadhyay, Sandler &
Younas, 2014) and for international trade (Bandyopadhyay & Sandler, 2014).
However, economists make an observation, no doubt quite logical: large rich countries
with diversified economies are better able to mitigate the effects of terrorism than small,
poor and more specialised economies. When production is disrupted in one sector of activ-
ity in a diversified economy, resources can easily be reallocated elsewhere. In addition, the
greater and more effective means available to rich countries to combat terrorism is likely
to deter a number of attacks. Small developing countries, whose economy specialises in a
handful of sectors, do not necessarily have the same resilience. Resources such as labour
or capital may be transferred from the affected sector to less productive activities or leave
the country altogether. Moreover, developing countries are likely to lack specialised coun-
ter-terrorism means (monitoring equipment, technologically advanced police or army, etc.).
The threat may therefore persist and scare away potential investors. In this context, a ter-
rorist attack is therefore likely to entail greater and lasting macroeconomic costs than else-
where. The amount of losses linked to the tragic attacks of which the United States
suffered on September 11, 2001 is thus estimated at 80 billion dollars. Still, this is only a
tiny fraction (less than 0.1%) of the US GDP, which was nearly $10.6 trillion in 2001. Small
countries, on the other hand, pay a heavier price. In the Basque country, for example, it
cost more than 10% of GDP per capita during the most critical period, between the mid-
1970s and the mid-1990s (Abadie and Gardeazabal, 2003). In addition, the impact differs
between countries and their stage of development. Gaibulloev and Sandler (2009) divided
a sample of 42 Asian countries into 7 developed countries and 35 developing countries.
According to their estimates, terrorism did not significantly impede growth in those in the
first group, while each additional attack (per million inhabitants) linked to international ter-
rorism lowered the growth rate of the developing economy affected by approximately
1.4%. These findings confirm the hypothesis that small developing countries are economic-
ally more vulnerable to terrorism than wealthier countries with diversified economies.
According to UNCTAD Statistics (2021), the share of the African continent in world trade
is 2.8%. This rate remains low for a market of 1.3 billion consumers who actually represent
17% of the world’s population. This low integration of the African economy into the world
economy can be explained by the fact that the countries of the African continent have an
 STUDIES IN ECONOMICS AND ECONOMETRICS 3

economic structure based on raw materials whose prices have been very volatile on the
international market in recent years. Added to this is the problem of the isolation of certain
countries. Because landlocked countries do not have direct access to major markets
(European market, Asian market and American market). In addition, being landlocked cre-
ates additional costs related to importing and exporting in these countries. Finally, this
poor performance of African trade may also be due to the decline of the manufacturing
sector. Because according to World Bank statistics (2018), the share of the African manufac-
turing sector in the GDP of this continent fell from 18% in 1975 to 11% in 2014, i.e. a rela-
tive drop of 38.8% while that of Asia instead increased by 8% during the same period.
However, the backwardness of the African continent in terms of trade may also be due to
the terrorist activities taking place on its territory.
The effects of terrorism on international trade have been studied in various ways in the
literature. In general, the literature on the effects of terrorism on international trade consid-
ers terrorism as an example of a trade cost factor (i.e. an ad valorem variable). Such costs
are believed to exert a negative effect on the volume of bilateral trade by increasing the
insecurity of trade transactions, disrupting confidence in international trade and physically
destroying transport infrastructure or even the goods themselves or the supply of factors
of production (Bandyopadhyay and Sandler, 2014), and by making cross-border transac-
tions more costly through the increased requirement of security standards.
Despite the fact that Suryanta and Patunru (2023) highlighted trade facilitation, tariff
and non-tariff measures as the major barriers of trade liberalisation, several studies have
focused on analysing the effect of terrorism on international trade in developed and devel-
oping countries (for example Bandyopadhyay, Sandler & Younas, 2018; De Sousa, Mirza, &
Verdier, 2009; Egger & Gassebner, 2015; Nitsch & Rabaud, 2022; Nitsch & Schumacher,
2004). None of these studies specifically addresses the case of Sub-Saharan Africa (SSA),
which currently represents one of the most important areas in the world that harbour
international terrorism. The expansion of terrorism on the continent is very significant
because Africans initially considered that this scourge was a North African affair, then a
Sahelian affair. Today, we have repercussions in Benin, Togo and Ivory Coast. To this end,
no country on the continent is spared from this threat. Our objective is to fill this gap by
analysing the case of SSA countries.
Africa appears globally as a region in lasting imbalance and a space of tensions and dis-
parities. The States resulting from independence are losing legitimacy and have not been
able to institutionalise appropriate capacities for the non-violent management of conflicts
or potential conflicts. However, threats of tension are dangerous in the absence of medi-
ation mechanisms. Good governance can ensure lasting peace by addressing the root
causes of conflict and ensuring that all citizens feel fairly represented in their needs or
interests (Collier & Hoeffler, 2004). Gleditsch and Hegre (1997) showed that apart from
times when repression is very severe, autocracy tends to increase the risk of conflict.
Moreover, Collier and Hoeffler (2004) have shown that there is a very large difference in
the extent of democracy between societies in conflict and societies at peace: on average,
episodes of conflict are preceded by a democracy score less than half that which precedes
episodes of peace. Therefore, the quality of governance is a factor that can either prevent
conflicts or mitigate their effects.
In summary, the results show that terrorism is an important determinant of international
trade in SSA. Across a number of specifications, we find terrorism to be the culprit of trade
backwardness in sub-Saharan Africa. The rest of this paper is organised like this. Section 2
presents the theoretical framework and the empirical work in the literature. Section 3
4 G. ZEUFACK NKEMGHA ET AL.

describes the data and methodology. Section 4 presents and analyzes the results. Section 5
concludes and makes some policy recommendations.

2. Theoretical work and empirical evidence of the relationship between

terrorism and international trade
2.1 Theoretical framework
The Heckscher-Ohlin (H-O) model developed by Heckscher (1919) and Ohlin (1933), raises
theoretical explanations of the consequences of terrorism at three levels.
First, terrorism redirects investment from the production of capital-intensive goods to
government spending due to the expansion of the defense budget. To this end, Gupta,
Clements, Bhattacharya, and Chakravarti (2004) find that catastrophic events not only des-
troy part of the tax base but hamper a government’s ability to collect revenue. Falling tax
revenues are exacerbated by the knock-on effects of increased public spending. High
spending on defense and security reduces the resources available to the economy for pri-
vate investment and public spending.
Second, transnational terrorism also acts as a transaction cost, preventing a company
from fragmenting its production processes where access to labour and capital is the cheap-
est. Transportation impediments are mainly the result of the implementation of govern-
ment policy through strict immigration controls, increased border inspection protocols and
more intensive screening procedures. For example, terrorism can increase transportation
costs by increasing insurance premiums for goods shipped to high-risk countries. In turn,
these higher costs increase the prices of imported goods, which has the effect of reducing
trade as import tariffs. The higher cost of doing business decreases the profitability of com-
panies, which encourages them to seek labour and capital from countries that do not have
such border restrictions. To this end, Nitsch and Schumacher (2004) found that countries
that have suffered a large number of terrorist attacks trade much less with each other.
Increased risks, additional security measures, and destruction increase transaction costs,
which directly affect real returns to capital and labour. Moreover, the transaction or friction
costs associated with terrorism can significantly affect international trade (Blomberg &
Hess, 2006; Fratianni & Kang, 2006; Lutz & Lutz, 2006)
Finally, terrorism can also lead to the destruction of the productive capacity of certain
sectors of an economy, making those sectors more dependent on imports, with the coun-
terintuitive consequence that terrorism can actually increase trade.

2.2 Brief literature review

The work of Nitsch and Schumacher (2004) was among the first works to establish an
empirical relationship between terrorism and trade. From there, other authors have been
interested in analysing the relationship between terrorism and international trade (like De
Sousa, Mirza, & Verdier, 2009; Egger and Gassebner, 2015; Bandyopadhyay, Sandler and
Younas, 2017; Bandyopadhyay, Sandler and Younas, 2018; Nitsch and Rabaud, 2022). It
appears from this work that there is a negative relationship between terrorism and inter-
national trade.
Nitsch and Schumacher (2004) use a reduced form cross-sectional gravity model of bilat-
eral trade with exports plus imports as the dependent variable for the years 1968–1979
and incorporate the sum of total terrorist attacks of two trading partners as the determin-
ant of bilateral trade (alternatively, they use a dummy variable reflecting whether the two
 STUDIES IN ECONOMICS AND ECONOMETRICS 5

countries have suffered at least one terrorist attack or measures of other political violence
events). The authors concluded that the incidence of a country’s terrorist attacks reduces
its total bilateral trade by 4%. De Sousa, Mirza, and Verdier (2009) use US bilateral panel
data at the standard four-digit international trade classification level from 1993 to 2002
and analyse the effect of terror against the United States on US imports, focusing on the
effect of terrorist attacks in countries close to the exporting partner. They find that both
terrorist attacks in the exporting partner country and in neighbouring countries of the
exporter reduce US imports. Additionally, the authors estimate that each attack reduces
trade by about 1% when it occurs in the exporting country and by about 0.5% when it
occurs in the neighbouring country of the exporter. Egger and Gassebner (2015) examine
country-level trade data on a monthly basis. According to their estimates, terrorist incidents
have no measurable effect on trade during the first year of their occurrence. However,
Nitsch and Rabaud (2022) analyse the impact of terrorism on international trade by exam-
ining a series of three high-profile terrorist incidents in France over the period from
January 2015 to July 2016. Using firm-level data at a monthly frequency, the authors note
the existence of an immediate and sustained decline in cross-border trade after the inci-
dent (a mass terrorist attack). According to the authors’ estimates, France’s trade in goods,
which represents about 70% of the country’s trade in goods and services, is reduced by
more than 6 billion euros in the first six months following the attack. The reduction in
trade takes place mainly along the intensive margin, with particularly strong effects for
partner countries with low border barriers with France, for companies with less frequent
commercial activities and for homogeneous products. A possible explanation for these
trends is an increase in business costs due to stricter security measures. Within the frame-
work of a standard competitive trade model, Bandyopadhyay, Sandler and Younas (2017),
show that the incidence of terrorism in different nations can affect the structure of trade.
Indeed, countries where terrorism is most prevalent will export goods that are more
immune to terrorism-related disruptions, while importing more terrorism-affected goods. In
addition, terrorism may result in increased welfare for some nations due to terms-of-trade
externalities. Additionally, Bandyopadhyay, Sandler, and Younas (2018) highlight another
potential problem with data aggregation, with possible variation in the terrorism-trade
elasticity at the product level. Analysing trade in primary and manufactured goods separ-
ately, their results suggest that the reduction in total trade induced by terrorism is only
due to a decline in trade in manufactured goods, while trade in primary goods may even
increase after a downturn terrorist attack.
In order to strengthen the capacities of their governments to prevent terrorist attacks,
the discretionary powers of the executive have been rapidly reinforced in several African
states. In addition, anti-terrorism laws exist in every country in the world. According to
Dragu and Polborn (2014), when the executive faces increased electoral incentives to pro-
vide security and has legal flexibility to choose the policy it deems optimal, security against
terrorism may actually decrease. In contrast, when the executive faces increased electoral
incentives to provide security and there is an explicit legal limit to the executive’s counter-
terrorism activities, security against terrorism increases. The authors also showed that the
executive more effectively achieves the objective of preventing terrorism when there are
certain limitations on its counterterrorism powers.
Three main limitations of this literature can be highlighted.

i. Previous work has focused more on the relationship between terrorism and bilat-
eral trade. However, the gravity model highlighted in each case does not take into
account all the trading partners of a country that are spread across all continents.
6 G. ZEUFACK NKEMGHA ET AL.

And therefore, the effect of terrorism on international trade is limited only to the
trading partners considered in the modelling. This is the reason why this study
analyzes the effect of terrorism on total foreign trade, the aim being to take into
account all the trade carried out by a country with all its trading partners.
ii. Previous empirical literature tells us that studies of the effect of terrorism on inter-
national trade are rare in Sub-Saharan Africa. However, SSA is the most unstable
region of the world with regard to the proliferation of terrorist activities. Moreover,
all the chapels of international terrorism are represented there. It is for this reason
that it is timely to analyse the effect of terrorism on international trade in Africa.
Moreover, the share of African trade in world trade is less than 3%(CNUCED, 2021);
in addition to the failure of industrialisation policies, we assume that terrorism can
also be in the dock
iii. Finally, previous work has been limited to demonstrating that terrorism has a nega-
tive impact on bilateral trade without, however, proposing the mechanisms or
channels that could make it possible to mitigate these effects. This is why we seek
to fill this gap in the literature by highlighting the governance channel.

3. Data et methodology
3.1 Data
The data used are from secondary sources. The work takes into account the data of each
variable of the study for the period 2000–20 and on 24 countries. These data are extracted
from the World Bank database (WDI, 2020), the Global Terrorism Database (GTD, 2020) and
the Governance Indicators Database (WGI, 2020). The choice of the study period and the
number of countries is conditioned by the availability of data.
Since the objective is to establish a relationship between terrorism and international
trade in sub-Saharan Africa, it would be wise to define and indicate the mode of calcula-
tion of the various economic aggregates that must be used in this modelling work.
Our independent variable of interest is terrorism. It is captured in this work by two dif-
ferent but related measures, namely that of Enders, Sandler, and Gaibulloev (2011) and
Gaibulloev, Sandler, & Santifort (2012): domestic terrorism and total terrorism. To test the
robustness of our econometric model, we will use two other types of terrorism developed
by these authors: transnational terrorism and dark terrorism. Terrorism indicators are
defined according to Efobi, Asongu, and Beecroft (2015, p. 6). Domestic terrorism “includes
all acts of terrorism involving nationals of the host country: implying that the perpetrators,
victims, targets and supporters are all from the host country”. Transnational terrorism is
“terrorism, including acts that affect two or more countries”. Vague or obscure terrorism is
that “which constitutes incidents of terrorism which cannot be defined either as national
terrorism or as transnational terrorism”. Total terrorism is the sum of domestic, trans-
national and dark terrorism. These four indicators of terrorism are increasingly used in the
literature on terrorism (Abid & Sekrafi, 2020; Asongu & Nwachukwu, 2017). This data comes
from the Global Terrorism Database (GTD, 2020). As for the dependent variable, inter-
national trade has been measured in various ways in the literature. Among these measures,
the degree of openness is the most commonly used classic indicator. It measures the level
of external constraint and is obtained by the ratio of the value of foreign trade to the
gross domestic product. Mathematically, the calculation of the degree of openness (also
called openness rate) is equal to the sum of imports and exports over gross domestic
product. This variable is increasingly used in the literature (Jouini, 2015; Keho, 2017;
 STUDIES IN ECONOMICS AND ECONOMETRICS 7

Nkemgha, Mbita, Engone, & Tchoffo, 2021; Nkemgha, 2023). Figure 1 shows a negative cor-
relation between terrorism and international trade. However, since correlation does not
mean causation, this relationship will be investigated empirically in the next section.
Regarding the control variables of our econometric model, they all come from the litera-
ture. To this end, Hailu (2010) demonstrated that FDI flows have a positive impact on inter-
national trade. Insurance, on the other hand, is positively linked to international trade
(Sawadogo, 2019). According to Yakubu, Aboagye, Mensah, & Bokpin (2018), domestic
credit to the economy has a positive effect on international trade. Stockman (1985) dem-
onstrated that inflation is damaging to international trade. According to Feldstein and
Horioka (1980), there is a positive association between savings and international trade. The
sources, definitions and list of panel countries are summarised in the appendix (Tables A1
and A2). Tables 1 and 2 provide the descriptive statistics and the correlation matrix,
respectively.

3.2 Methodology
Based on recent literature on international trade (Nitsch and Rabaud, 2022), we formulate
the following econometric model:
ITit ¼ b0 þ b1 ITt1 þ b2 Terrorit þ b3 Xit þ li þ vt þ eit (1)
Where ITit represents the international trade of country i in the period t, Terrorit repre-
sents the terrorism variable of the country i in the period t, Xit is a vector which includes
all control variables, li is an unobserved country-specific effect, vt is time specific effect,
and eit is the error term.
We use different specifications and several estimation techniques to analyses the effect
of terrorism on international trade. We first use Ordinary Least Square (OLS) method to
estimate Equation (1). Two potential problems with the results are unobserved: individual
heterogeneity and distributional heterogeneity. Since, traditional OLS regression focuses on
mean effects and does not take this distributional heterogeneity into account. To control
for distributional heterogeneity, the Quantile Regression developed by Koenker and Bassett
(1978) is used. In doing so, we also test the robustness of the results against the extreme
value of our dependent variable. Moreover, the OLS model does not account for

Figure 1. Effect of terrorism on international trade.

8 G. ZEUFACK NKEMGHA ET AL.

Table 1. Descriptive statistics.

Obs Mean SD Min Max
Trade 504 71.74 33.70 20.72 209.89
Domter 504 0.508 0.98 0.00 6.23
Totter 504 0.633 1.06 0.00 6.30
FDI 504 4.545 7.63 4.85 69.08
Insurance 504 1.1300 1.15 0.07 5.65
Domcred 504 17.06 16.61 0.19 108.06
Infl 504 7.88 28.21 9.61 513.90
Manuf 504 10.20 4.93 0.23 24.55
Savings 504 13.43 16.46 40.81 64.92
Goveff 504 0.75 0.59 1.84 1.05
Source: Authors.

Table 2. Correlation matrix.

1 2 3 4 5 6 7 8 9 10
Trade (1) 1.00
Domter (2) 0.17 1.00
Totter (3) 0.14 0.97 1.00
FDI (4) 0.45 0.22 0.21 1.00
Insurance (5) 0.64 0.09 0.09 0.11 1.00
Domcred (6) 0.58 0.11 0.12 0.15 0.65 1.00
Infl (7) 0.19 0.17 0.18 0.06 0.24 0.29 1.00
Manuf (8) 0.14 0.03 0.05 0.28 0.43 0.43 0.28 1.00
Savings (9) 0.05 0.04 0.07 0.20 0.08 0.11 0.13 0.26 1.00
Goveff (10) 0.33 0.30 0.32 0.10 0.15 0.01 0.25 0.39 0.14 1.00
Source: Authors.

country-fixed effects, and may suffer from omitted variables bias. To deal with country fixed-
effects, we subsequently applied a fixed effect (FE) model. However, when the FE technique
is used to estimate this model, the estimated coefficients are inconsistent and likely to be
biased since the lagged value of international trade (ITit1 ) is correlated with the error term
(Nickell 1981) raising the problem of endogeneity. To address this endogeneity issue, we
apply the System Generalised Method of Moment (GMM) proposed by Arellano and Bond
(1991), Arellano and Bover (1995) and Blundell and Bond (1998). GMM is useful for several
advantages. First, the GMM estimator has been widely used to address the endogeneity
problem that appears in panel data estimation (Arellano and Bover 1995; Blundell and Bond,
1998). Second, the GMM estimator also take into account the biases that appear due to
country-specific effects. Third, GMM also avoids simultaneity or reverse causality problems.
The consistency of the GMM estimator depends on two tests: the validity of the assumption
that the error term does not exhibit serial correlation (AR (2)) and the validity of the
instrument’s (Hansen test). Too many instruments can severely weaken and bias the Hansen
over-identifying restrictions test, and therefore, the rule of thumb is that the number of
instruments should be less than the number of countries (Roodman 2009).

4. Results
The results are presented in the various tables below. Table 3 presents OLS results of the
impact of terrorism on international trade. Table 4 presents the results with the Quantile
Regression method. Table 5 provides the results with the fixed effect method. Table 6
replicates the results presented in Table 5 by using the GMM technique. Table 7 provides
the results of the GMM technique with more additional variables. Finally, Table 8 analyse
the role of governance in the relationship between terrorism and international trade.
 STUDIES IN ECONOMICS AND ECONOMETRICS 9

Table 3. Results of the effect of terrorism on international trade using the OLS method.
1 2 3 4 5
Panel A: Domter
Domter 6.5088 5.5983 3.8134 3.4459 3.4214
(0.00) (0.00) (0.00) (0.00) (0.00)
FDI 1.1524 1.0578 1.1709 1.1655
(0.00) (0.00) (0.00) (0.00)
Insurance 16.6449 7.2929 7.2814
(0.00) (0.03) (0.03)
Domcred 0.6255 0.6139
(0.00) (0.00)
Infl 0.0645
(0.68)
Cons 67.2837 60.0265 45.5350 42.3748 43.0485
(0.00) (0.00) (0.00) (0.00) (0.00)
R2 0.031 0.194 0.5186 0.5248 0.5265
Prob(Chi2) 0.00 0.00 0.00 0.00 0.00
Countries 24 24 24 24 24
Panel B: Totter
Totter 5.3758 4.6762 3.0827 2.7100 2.6802
(0.00) (0.00) (0.00) (0.00) (0.00)
FDI 1.1836 1.0759 1.1875 1.1820
(0.00) (0.00) (0.00) (0.00)
Insurance 17.3152 7.9586 7.9594
(0.00) (0.02) (0.02)
Domcred 0.6268 0.6151
(0.00) (0.00)
Infl 0.0666
(0.67)
Cons 67.2615 59.8580 44.8053 41.5944 42.2693
(0.00) (0.00) (0.00) (0.00) (0.00)
R2 0.02 0.18 0.51 0.52 0.52
Prob(Chi2) 0.00 0.00 0.00 0.00 0.00
Countries 24 24 24 24 24
, , represent the significance thresholds at 1%, 5% and 10% respectively. Values in parentheses represent
probabilities.

The estimation regressions satisfy mutually the Hansen test of the validity of instruments
and the serial correlation test AR(2).

4.1 Baseline results

Table 3 presents the results of the baseline estimation using the OLS method. The results
clearly suggest that terrorism negatively impacts international trade, which means that terror-
ism constitutes an impediment to the expansion of international trade. For example, the results
in column (5) suggest that an increase in terrorist activities of 1% leads to a reduction in inter-
national trade of 3.42% and 2.68% respectively for domestic terrorism and total terrorism.
Since traditional OLS regression focuses on average effects and does not take distribu-
tional heterogeneity into account, the use of quantile regression allows this heterogeneity
to be taken into account.

4.2 Quantile regression

The results (Table 4) are reported for the 30th, 40th, 50th, and 60th percentiles of the condi-
tional distribution. Overall, the empirical results indicate that the coefficients associated with
the various measures of terrorism is negative and statistically significant, meaning that terror-
ism reduces international trade. These results are consistent with the previous results.
10 G. ZEUFACK NKEMGHA ET AL.

Table 4. Results of the effect of terrorism on international trade using the Quantile regression.
Q30 Q40 Q50 Q60
Panel A: Dometr
Domter 2.9675 3.5511 3.9341 2.3163
(0.03) (0.00) (0.00) (0.06)
FDI 1.0197 1.1211 1.0704 1.1819
(0.00) (0.00) (0.00) (0.00)
Insurance 24.3928 27.0674 28.6261 32.2615
(0.00) (0.00) (0.00) (0.00)
Domecred 0.6012 0.5015 0.4650 0.3957
(0.00) (0.00) (0.00) (0.00)
Infl 0.0703 0.0720 0.0683 0.1129
(0.6) (0.6) (0.6) (0.5)
Cons 23.2456 24.7012 27.2148 25.8634
(0.00) (0.00) (0.00) (0.00)
Pseudo- R2 0.3551 0.4066 0.4411 0.4454
Nb. Obs 201 201 201 201
Panel B: Totter
Totter 2.2742 2.7221 2.3035 2.0935
(0.03) (0.00) (0.02) (0.07)
FDI 1.0465 1.1740 1.0857 1.1929
(0.00) (0.00) (0.00) (0.00)
Insurance 24.1210 25.1674 29.6591 32.9396
(0.00) (0.00) (0.00) (0.00)
Domcred 0.5863 0.5155 0.4366 0.3882
(0.00) (0.00) (0.00) (0.00)
Infl 0.0388 0.0571 0.0106 0.1179
(0.7) (0.6) (0.9) (0.5)
Cons 23.2322 25.6881 26.0101 25.0736
(0.00) (0.00) (0.00)
Pseudo- R2 0.3510 0.4034 0.4386 0.4439
Nb. Obs 201 201 201 201
, , Represent the significance thresholds at 1%, 5% and 10% respectively. Values in parentheses represent
probabilities.

Table 5. Results of the effect of terrorism on international trade using the fixed effect method.
1 2
Domter 3.5640
(0.00)
Totter 2.8180
(0.00)
FDI 1.1660 1.1833
(0.00) (0.00)
Insurance 6.3200 6.9702
(0.07) (0.05)
Domcred 0.6172 0.6189
(0.00) (0.00)
Infl 0.0547 0.0555
(0.7) (0.7)
Cons 43.7844 43.04
(0.00) (0.00)
R2 0.4632 0.4537
Prob(F-stat) 0.00 0.00
Nb Countries 24 24
, , Represent the significance thresholds at 1%, 5% and 10% respectively. Values in parentheses represent
probabilities.

Moreover, the OLS model does not account for country fixed effects, and may suffer
from omitted variables bias. To deal with country fixed-effects, we subsequently applied a
fixed effect (FE) model.
 STUDIES IN ECONOMICS AND ECONOMETRICS 11

Table 6. Results of the effect of terrorism on international trade using the system GMM method.
1 2 3 4
Domter 4.1303
(0.00)
Totter 3.7923
(0.00)
Transter 12.7562
(0.09)
Unter 43.8359
(0.02)
FDI 0.2018 0.1949 0.3797 0.4078
(0.04) (0.05) (0.00) (0.00)
Insurance 2.4213 3.5155 6.6696 0.6759
(0.6) (0.4) (0.03) (0.8)
Domcred 0.2979 0.2918 0.1686 0.0295
(0.00) (0.00) (0.2) (0.8)
Infl 0.2491 0.2106 0.5566 0.4329
(0.5) (0.6) (0.2) (0.04)
Lag Depend 0.8164 0.8384 0.9015 0.7988
(0.00) (0.00) (0.00) (0.00)
Cons 9.1662 9.4717 14.7031 9.0357
(0.01) (0.01) (0.02) (0.07)
AR(1) 0.04 0.04 0.03 0.03
AR(2) 0.48 0.78 0.71 0.71
Sargan 0.44 0.47 0.21 0.46
Hansen 0.99 0.99 1.00 1.00
Prob(Chi2) 0.00 0.00 0.00 0.00
Nb Obs 192 192 192 192
, , Represent the significance thresholds at 1%, 5% and 10% respectively. Values in parentheses represent
probabilities.

4.3 Fixed effects regression

The results of the fixed effects method are reported in Table 5. The results of this model
are consistent with the previous results.
The previous methods have established a statistically significant negative effect of terror-
ism on international trade in sub-Saharan Africa. However, the possibility of reverse caus-
ation, endogeneity or unobserved heterogeneity may bias our results by calling them into
question. To deal with these potential problems, we estimate Equation (1) using the system
GMM method. The results of this estimation are presented in Table 6.

4.4 System GMM estimation

The analysis of the effect of terrorism on international trade by the system GMM method
shows an absence of second-order autocorrelation at the 5% threshold and the validity of
the instrument identification test for the four columns. Overall, we observe the negative
association between terrorism and international trade in Table 6.
Overall, we observe that terrorism has a negative and significant effect on international
trade. Thus, an intensification of terrorist activities by 1% leads to a reduction in the vol-
ume of international trade by 4.13% and 3.79% respectively for domestic terrorism and
total terrorism (columns 1 & 2 of Table 6). This result can be explained by the fact that
most countries in sub-Saharan Africa are constantly classified by the Global Peace Index
organisation as being unstable or at risk (for example, Congo, Burkina Faso, Democratic
Republic of Congo, Central African Republic, Chad, Mali, Niger, Nigeria and Cameroon). This
recurring instability due to terrorist activities hinders the development process of these
countries through the reduction in the volume of international trade. Concretely, once the
12 G. ZEUFACK NKEMGHA ET AL.

Table 7. Effect of terrorism on international trade with more control variables (GMM).
1 2 3 4
Domter 4.2866
(0.02)
Totter 3.8699
(0.02)
Transter 8.3201
(0.00)
Unter 30.9296
(0.02)
FDI 0.3181 0.3100 0.3065 0.2201
(0.16) (0.1) (0.1) (0.1)
Insurance 39.4546 38.9304 28.0607 33.1204
(0.1) (0.09) (0.06) (0.1)
Domcred 0.7753 0.7529 0.5213 0.2418
(0.01) (0.01) (0.00) (0.4)
Infl 1.3331 1.2305 1.0473 1.4579
(0.2) (0.2) (0.1) (0.05)
Manuf 1.2872 1.2541 0.7658 1.3589
(0.16) (0.1) (0.1) (0.1)
Savings 0.3828 0.3639 0.2847 0.4395
(0.31) (0.31) (0.2) (0.1)
Lag Depend 1.1429 1.1534 1.1130 1.3025
(0.00) (0.00) (0.00) (0.00)
Cons 17.0560 15.8785 14.3653 10.4634
(0.04) (0.04) (0.03) (0.00)
AR(1) 0.04 0.04 0.03 0.00
AR(2) 0.277 0.3 0.59 0.46
Sargan 0.68 0.6 0.39 0.78
Hansen 1.00 1.00 1.00 0.99
Prob(Chi2) 0.00 0.00 0.00 0.00
Nb Obs 192 192 192 192
, , Represent the significance thresholds at 1%, 5% and 10% respectively. Values in parentheses represent
probabilities.

terrorists are present in a region, the local populations who for the most part live from
agriculture abandon their crops and others to migrate to other more stable and secure
regions in order to preserve their lives (it is usually IDPs and refugees). These unexpected
migrations lead to an insufficient supply of agricultural products (which constitute the raw
material for national and foreign industrial companies) and impact the optimal functioning
of national and foreign industrial companies which will ultimately be unable to satisfy
external demand. It is through this mechanism that terrorism negatively impacts the vol-
ume of international trade. This result is compatible with the work of Nitsch and Rabaud
(2022) and Bandyopadhyay et al. (2018) who found that terrorism negatively impacts the
volume of international trade.
Furthermore, the results presented in columns 3 and 4 of Table 6 for robustness pur-
poses show overall that the alternative measures of terrorism (transnational terrorism and
dark terrorism) have a negative impact on international trade in sub-Saharan Africa. The
results obtained in columns 3 and 4 are consistent with those found in columns 1 and 2 of
the same table. These results are also explained by the fact that terrorist attacks in trading
partners lead to higher transaction costs, higher transport costs, increased uncertainty, loss
of revenue and higher trade costs (e.g., greater border controls and higher insurance rates),
which have a negative impact on trade (Nitsch and Schumacher, 2004).
In addition, to further control the robustness of the results of our econometric model,
we decided to introduce two additional control variables: industrialisation (Maunf) and
domestic savings (Savings). Thus, the robustness of our econometric model is proven with
 STUDIES IN ECONOMICS AND ECONOMETRICS 13

Table 8. Terrorism, governance and international trade using the GMM method.
1 2 3 4
Domter 21.9428
(0.06)
Totter 15.6826
(0.01)
Transter 38.9854
(0.05)
Unter 82.8991
(0.03)
FDI 0.4531 0.0181 0.1405 0.5361
(0.1) (0.9) (0.3) (0.6)
Insurance 15.1048 35.5659 26.8751 5.6949
(0.1) (0.09) (0.05) (0.7)
Domcred 0.8397 0.8701 0.1033 0.1098
(0.00) (0.2) (0.8) (0.6)
Infl 0.1616 2.6987 1.0813 0.2332
(0.8) (0.13) (0.2) (0.1)
Goveff 50.7435 22.3115 32.5901 39.7268
(0.1) (0.1) (0.00) (0.1)
Domtergof 13.9669
(0.09)
Tottergof 12.4726
(0.07)
Transtergof 34.6165
(0.08)
Untergof 90.9237
(0.02)
Lag Dependent 0.7903 0.9169 0.6009 0.9267
(0.00) (0.00) (0.00) (0.00)
Cons 52.2221 3.1663 30.2078 40.0202
(0.05) (0.7) (0.1) (0.08)
AR(1) 0.00 0.00 0.05 0.02
AR(2) 0.23 0.49 0.22 0.85
Sargan 0.48 0.95 0.72 0.84
Hansen 0.994 1.00 1.00 1.00
Prob(Chi2) 0.00 0.00 0.00 0.00
Nb. Obs 192 192 192 192
, , Represent the significance thresholds at 1%, 5% and 10% respectively. Values in parentheses represent
probabilities.

regard to the significance of all the explanatory variables of interest, as shown by the
results recorded in Table 7.
Recent research highlights the important role played by the quality of institutions in pro-
moting development. Given Africa’s colonial past and its position in the international sys-
tem, it is difficult to escape the temptation to reduce conflicts to economic and cultural
determinants or to give preponderance to external factors. But sticking to this explanation
would amount to simplifying the problem and ignoring the political dynamics of proximity
and the role of African political actors themselves. Indeed, recourse to factors that are too
distant often obscures the analysis more than it clarifies it, since it is difficult under these
conditions to establish causal relationships (Bratton and Van de Walle, 1997). From this per-
spective, Deng and Et Zartman (1991) believe that the causes of conflict are almost always
internal or regional, but that other aspects, such as the means used, are external. Similarly,
some authors provide an interesting lead by arguing that war is linked to the failure of the
state to respond to Africa’s social heterogeneity (Copson 1994) or that it is a sign of gov-
ernance failure. These authors therefore have in common to emphasise political factors,
because it is the behaviour of the leaders in place that most often produces grievances,
which, in the presence of particular conditions (greed), turn into conflicts (Collier and
14 G. ZEUFACK NKEMGHA ET AL.

Hoeffler 2004). If we mean by this controversial term of governance, the institutionalisation

of norms of behaviour, of democratic mechanisms and procedures for the management of
public affairs, it can serve as a grid from which we can provide an interpretation of the
proximity of the determinants of conflicts or terrorism in Africa. These appear as the prod-
ucts of a crisis of political and economic governance, strategies of politicians or interfer-
ence from external actors.

4.5 What is the role of governance in the relationship between terrorism and
international trade in sub-Saharan Africa?
Given the fact that African countries are going through a crisis of governance and based
on the work of Copson (1994) and Collier and Hoeffler (2004), we sought to know if the
governance of African countries constitutes a catalyst through which terrorism exerts its
effects on international trade. The results of this analysis show that the governance (meas-
ured in this work by government effectiveness) of African countries constitutes a transmis-
sion channel through which terrorism negatively impacts the volume of international trade,
as evidenced by the results recorded in the Table 8.

5. Conclusion and policy implications

Several studies have been conducted on the determinants of international trade in sub-
Saharan Africa. In addition to the classic determinants of international trade, the structural
specificities of the countries of sub-Saharan Africa have not yet been highlighted during
the analysis of the determinants of international trade. And among the characteristic spe-
cificities of African economies is the thorny problem of terrorism, which is either domestic,
transnational or dark. Despite the abundant literature on the economic consequences of
terrorism, there is no study of the effect of terrorism on international trade, particularly in
sub-Saharan Africa. However, these countries have been plagued by terrorism for more
than two decades. It is for this reason that this article aims to verify whether or not terror-
ism is the culprit of trade retardation in 24 SSA countries during the period 2000–2020. To
carry out our study, we mobilised several estimation methods such as ordinary least
squares methods, quantile regression, fixed effects and generalised moments. Two main
results emerged from this study. First, there is a negative relationship between terrorism
and international trade. Second, the results show that governance is a potential channel
through which terrorism transits to exert its harmful effect on international trade. Thus,
African countries must make efforts to improve the quality of their governance so that it
contributes to being a deterrent to terrorism for the benefit of the trade of African coun-
tries and their trading partners. Future research could further analyse the relationship
between terrorism and international trade, taking into account the role of natural resource
abundance.

Disclosure statement
No potential conflict of interest was reported by the author(s).

ORCID
Guivis Zeufack Nkemgha http://orcid.org/0000-0001-7556-3404
 STUDIES IN ECONOMICS AND ECONOMETRICS 15

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 STUDIES IN ECONOMICS AND ECONOMETRICS 17

Appendix

Table A1. List of panel countries.

Burundi Cote d’Ivoire Malawi Togo
Botswana DRC Central African Republic Mali
Burkina Faso Mauritius Chad Mozambique
Congo Rwanda Uganda Lesotho
Cameroon Madagascar Senegal Niger
Sierra Leone Nigeria Zambia Tanzania
Source: Authors.

Table A2. Summary of the different variables present in this study.

Variables definition
Variables Signs (measurement) Sources
Manufacture Manuf Manufacturing value World Bank
added (% of GDP)
Insurance Insurance Volume of insurance FANAF
premiums on GDP (%)
Foreign direct investment FDI Foreign Direct Investment, World Bank
net inflow (% of GDP)
Savings Savings Volume of savings to GDP World Bank
International trad Trade Total imports and exports World Bank
over GDP.
Inflation Inf Consumer price index (%) World Bank
Government effectiveness Goveff Government effectiveness World Bank
measures perceptions
of the quality of public
services, the quality of
the public service and
its degree of
independence from
political pressures, the
quality of policy
formulation and
implementation, and
the credibility of the
government’s
commitment to these
policies. It is between
2.5 and 2.5
Domestic Credit Domcred Credit granted to the World Bank
economy by banks (%
of GDP)
domestic terrorisme Domter Acts of terrorism involving GTD
nationals of the host
country
transnational terrorisme Transter Acts of terrorism involving GTD
at least two countries
obscure or dark terrorisme Unter Incidents of terrorism that GTD
cannot be defined as
either domestic or
transnational terrorism
Total terrorism Totter The sum of domestic, GTD
transnational and dark
terrorism
Source: Authors.