Given the increase in the number of terrorist attacks in African countries, a better understanding of the relationship between terrorism, the informal economy and public debt is essential for policymakers. The model is empirically tested for 47 countries during the period 1996–2015. We use ordinary least squares (OLS), random effects (ER) and system generalized method of moments (GMM). Three terrorism indicators are used: the uncertain, the domestic, and the transnational. The results confirm that the rise in terrorism and the informal economy lead to an increase in public debt. The results also show that the informal economy magnifies the effect of terrorism on public debt. In addition, the results suggest that a larger informal economy reduces income taxes and therefore increases public debt and the increase in public spending reinforces the effects of terrorism on public debt. The reduction of terrorism should therefore be governments’ primary political objective. Given the detected complementarity between terrorism and the informal economy, the reduction of terrorism would also reduce the size of the informal economy and the public debt. The reduction of terrorism will also minimize the harmful effects of terrorism on public debt through public spending.
The real exchange rate is a key indicator of a country’s trade competitiveness in the world. This paper investigates the interaction between oil price and real exchange rates in Saudi Arabia during the period January 1986 -March 2019, using monthly data. This study uses the autoregressive distributed lag model and the error correction model in order to investigate the existence of a long-run equilibrium relationship between the variables. The evidence reveals that there is a strong long-run cointegration. The robustness of the autoregressive distributed lag bounds test cointegration was confirmed using the newly developed combined cointegration, which also provided the same evidence for a strong long-run relationship. In the short term, the results confirm the existence of a unidirectional causal relationship ranging from the oil price to the exchange rate. In the long term, however, the causal relationship is bidirectional between these two variables. An appreciation of the Saudi exchange rate generates an increase in the relative demand for oil, which in turn creates upward pressure on its price. For policy purposes, such evidence suggests that Saudi Arabia should be careful not to put too much weight on the benefits of higher revenue due to higher oil price.
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