Terrorism as a Determinant of Attracting FDI in Tourism: Panel Analysis

Abstract

The aim of this paper is to investigate whether terrorism is one of the important determinants affecting the investment decisions of foreign investors in tourism on a panel of 50 countries over the period 2000 to 2016. In addition to terrorism, the importance of three other theoretically significant determinants of attracting foreign direct investment (FDI) in tourism are explored—the previous level of FDI in tourism, the level of GDP and the international tourist arrivals. To obtain more reliable research results, the initial model is extended with certain control variables. The study uses system-GMM estimator for dynamic panel data models. The research results of a narrower and a wider model indicate that terrorism has no significant effect on the FDI inflow in tourism while international tourist arrivals significantly affect the future FDI in tourism in both models. Furthermore, the research results entail certain political connotations. In order to attract foreign investors in tourism, the most important factor is to ensure a stable macroeconomic environment with a competitive position in the Doing Business list and what better business conditions. Attention should also be focused on the security and preventive counter-terrorism, which will ensure that potential destinations reflect confidence, have a growth rate of tourist arrivals and, consequently, attract foreign investors.

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