Geopolitical risk and tourism: Evidence from dynamic heterogeneous panel models

Abstract

This paper provides an empirical insight into how geopolitical risks impact international tourism demand. An augmented tourism demand function was developed and empirically estimated in line with classical theory for a panel of 16 countries from 2005M1 to 2017M12 through the AMG and CCEMG estimation techniques that address underlying heterogeneity, non‐stationarity, and cross‐sectional dependence. The study further examines the potential moderating effect of covid‐19 outbreak on the relationship between geopolitical risk and tourism by investigating the interactive effect of past outbreaks and geopolitical risks on tourism demand. Additional insight on causal relations between geopolitical risks and tourism demand was obtained using panel bootstrapping technique. The results show that geopolitical risk negatively impacts tourism demand, and that pandemic outbreaks aggravate the negative impact of geopolitical risks on tourism demand. Panel causality outcomes further confirm that geopolitical risk is a significant predictor of tourism demand (captured by either tourism receipts or number of inbound tourists). Our findings confirm that the dynamic attributes of both local and international political environments significantly impact the consumption decision of tourists and the economic performance of tourist destinations. Our recommendation is that pre‐crisis, in proposing policy directions for tourism sector development, policy‐makers should establish crisis management plans to protect the tourism sector. Post‐crisis, policy‐makers should initiate aggressive recovery marketing strategies to re‐establish the image of safety and attractiveness required to reassure potential tourists of the safety of the destination, thereby ensuring return to competitiveness and economic recovery.

The Impact of a Global Crisis on Areas and Topics of Tourism Research

“…Tourism policy planning Formulate tourism development policies [12] 3.1.1. Government Crisis Management: Before the Crisis From the perspective of government crisis management, before the crisis, [12] used the augmented mean group (AMG) and the common correlated effects mean group (CCEMG) estimation techniques to study the potential moderating effect of the COVID-19 outbreak on the relationship between geopolitical risks and tourism, and proposed that before the crisis, policy makers should formulate a crisis management plan to protect the tourism industry when formulating the policy direction of tourism development.…”

“…Insurance and subsidy programs for employees; support the survival of the hotel and airline industry [3,[13][14][15][16][17] Play the function of the informal sector Cooperation between the informal sector and government departments; provide microfinance; provide bank insurance [18,19] Prioritize actions Quick response to the tourism industry in crisis [13,15] Formulate public policy Prohibit or restrict the arrival of giant cruise ships and promote the development of small cruise ships; issue policies to support the aviation and hotel industry; government supervision of policy implementation [12,20,21] Table 5. Government crisis management: after the crisis.…”

“…Promote tourists on the safety of the destination; promote the image of the destination through social media [12] 3.1.2. Government Crisis Management: In Crisis In times of crisis, Chen et al [13] argued that the government needs to take countermeasures to save the loss of domestic tourism.…”

“…Fourth, after the crisis, policy makers should adopt active recovery marketing strategies to re-establish the image of safety and attractiveness required by tourists to ensure the restoration of competitiveness and economic recovery, according to [12].…”

“…Resilience [23,67] Regenerative economy [23,46,68] Neo-liberalism [20,51,67] Liquidity justice [67] Political ecology [55] Geopolitics [12] Path dependence and path creation [55] Compared with mainstream disaster response discourse, the recovery movement provides a completely different vision for post-disaster "reconstruction" and climate "resilience", according to Gallego and Font [67]. Foo et al [23] pointed out that the flexible adaptation cycle suggests four general stages of change events and concluded that the tourism industry may have begun to enter the stage of innovation and creativity, which is essential for the human system to transform itself to adapt to the new environment of the planet on which it lives.…”