THE EFFECT OF TERRORISM AND KIDNAPPING ON THE NIGERIA ECONOMY.

THE EFFECT OF TERRORISM AND KIDNAPPING ON THE NIGERIA ECONOMY.

ABSTRACT

In spite of government counter-terrorism expenditure and efforts, the incidence of terrorism in Nigeria appears to be rising. This study examines the growth and fiscal consequences of terrorism in Nigeria by estimating the terrorism--macro economy relation using different measures of terror incidence. The results show that terrorism has an economically and statistically significant negative impact on growth; although this impact is considerably small and short-lived, manifesting only after a lag of about three years. Specifically, the cost of terrorism to Nigeria, in terms of lost GDP per annum, is estimated at 0.82 percent. Moreover, there is evidence that terrorism leads to the reallocation of economic activity away from private investment spending to government spending; that is, terrorism crowds out investment at a higher rate than its potential to crowd in government spending. Lastly, terrorism alters the composition of government expenditure with the defense component of government expenditure rising vis-a-vis other expenditure items.