Hospitality Industry: Impact Of Terrorism On The Industry

Abstract

This paper analyses the impact of terrorist activity on international tourist flows. To this end, we have estimated a cross-sectional gravity equation for tourism from the G-7 countries to a sample of 134 destinations over the period 2001-2003. Within this framework, we evaluate the deviation from 'normal' tourist flows due to terrorist activity, which is considered as negative advertising for the affected country. The analysis suggests that both domestic victims and international attacks are relevant factors when foreign tourists make their choice. This result is robust under alternative specifications. Moreover, the impact of terrorism is more severe in developing countries.

Keywords: Domestic terrorism; International terrorism; Gravity model; Negative advertising; Tourist flows

Table of Contents

Chapter One: Introduction4

Overview4

Chapter Two: Literature Review6

Egypt and al-gama'a al- Islamiya6

The Kenyan tourist decline9

The Global effects on tourism of September 11th attacks10

Theoretical Model28

Chapter Three: Methodology32

The Empirical Model32

Chapter Four: Discussion and Results38

Data And The Measurement Of Variables38

Results40

Chapter Five: Conclusion43

References45

Chapter One: Introduction

Overview

The correlation between tourism and terrorism is undeniable in the modern era due to the strength of the industry and the fact that these honey pot sites such as the pyramids of Geza act as an ideal target place for terrorist attacks in order to cause large amounts of social and economic disruption.

The economy in the 21st century is dominated by three industries telecommunications, information technology and tourism. Tourism provides 10.5% of global employment with in excess of 25% in areas such as the Caribbean. It has been estimated that by 2008 more then 100 million people world wide will be employed in the sector according to the WTO (World tourism organization)

The travel and tourism industries have grown by 500% in the last 25 years and it is estimated that in the year 2007 tourists will spend US$884 billion in foreign countries on tourism related activities. For many countries in the developing world tourism is the most critical form of income in terms of GDP and therefore a major influence in any economic development. The problem is for many of these less economically developed countries is that any political issues they may have could cause conflict with other groups of people who have certain political beliefs could lead to the application of terrorist attacks mainly due to religious and political opinions and/or land ownership.

These actions of terrorist activity on these tourist areas will most definitely have an adverse effect on the countries economy. According to Adam Blake and Thea Sinclair accoeding to the WTO, “The contribution of tourism and travel to both industrialized and developing countries is now so great that any downturns in the level of activity are a cause for concern. The repercussions extend beyond activities directly associated with tourism, notably airlines, hotels and catering, to sectors that supply intermediate or final goods that are purchased by firms and employees in the industry, so that all sectors of the economy are affected to a greater or lesser effect.” In reality the quotation relates to the global impact of terrorist attacks and ...