The paper used the political economy method to examine the effect of insecurity on the Nigerian economy. The objectives of the study were to; examine the conceptual clarification on insecurity, forms of insecurity, incidence of insecurity, causes of insecurity, effect of insecurity on foreign trade in Nigeria and the way forward to insecurity challenges in Nigeria. This was done by with the use of elements of political analysis method in which information/ data from secondary sources were collected and analyzed in line with the subject matter. The finding showed that, insecurity affects the Nigerian economy by drying-out investments, increases unemployment and dwindles government revenue, amongst others. Despite these effects, the paper suggested amongst others that government capital expenditure on internal security should grow astronomically to match the hydra-headed problem of internal security.