Corruption, terrorism and illicit financial flows related to extractive commodity trade in Africa

Abstract

The purpose of this study is to assess the incidence of illicit financial flows (IFFs) on terrorism in Africa, contingent on corruption-control. The study utilizes data from 38 African counties spanning from 2002 to 2021. In order to increase room for policy implications, the overall IFFs measure is decomposed into two main sub-components, namely: illicit financial inflows and illicit financial outflows. The empirical evidence is also based on: (i) baseline regressions, (ii) estimations with the lagged independent variables in order to control for the simultaneity dimension of endogeneity, as well as (iii) GMM in order to account for both the simultaneity and unobserved heterogeneity dimensions of endogeneity. The robustness of the empirical analysis is further improved by limiting the sample to the Sahel countries in which most of the terrorism has been documented over the past decades. It is apparent from the findings that corruption-control effectively moderates IFFs, especially illicit financial inflows, in order to engender an overall negative effect on the outcome variable or terrorism. For the most part, the corruption-control policy thresholds are within policy range. Policy implications are discussed.