Terrorism and the Shadow Economy: A Panel Analysis for Africa

Abstract

ABSTRACT In this study, we investigate the impact of terrorism on the shadow economy. The study uses panel data from 53 African economies spanning 1996 to 2020. Using an array of heterogeneous panel data estimators, including the augmented mean‐group estimator that corrects for intertemporal correlations and endogeneity, our results challenge existing knowledge. First, in a situation where the institutional and security architecture is relatively weak, terrorism reduces the shadow economy. Second, the impact of terrorism on the shadow economy varies among countries, as revealed in the heterogeneous analysis. Further analysis shows that strong elected local government can serve as a veritable tool for downsizing informality. Local government autonomy reduces informality by enhancing effective public service delivery and boosting tax morale. These findings are robust to alternative estimations. The implications of these findings are discussed. Related Articles Iheonu, C. O. 2025. “Terror, Output, and Institutions in Africa.” Politics & Policy 53, no. 5: e70067. https://doi.org/10.1111/polp.70067 . Iheonu, Chimere O., Princewill U. Okwoche, and Shedrach A. Agbutun. 2024. “The Impact of Democracy on Peace in Africa: Empirical Evidence.” Politics & Policy 52, no. 5: 1038–1058. https://doi.org/10.1111/polp.12632 . Antwi‐Boateng, Osman. 2017. “The Rise of Pan‐Islamic Terrorism in Africa: A Global Security Challenge.” Politics & Policy 45, no. 2: 253–284. https://doi.org/10.1111/polp.12195 .