Effects of terrorism

By JAI MANRAL
The tourism industry generates substantial economic benefits to both host countries and tourists' home countries. It is an especially important industry to developing countries. The main benefits of tourism to a country are foreign exchange earnings, tax revenues, business opportunities for budding entrepreneurs, and employment for workers in the industry.
According to the WTO, "Tourism is one of the top five export categories for as many as 83% of countries and is the main source of foreign exchange earnings for at least 38% of countries." Foreign exchange earnings from exports are used to purchase imports and augment reserves. They generate income in the host country and can stimulate consumer spending and investment in other sectors of the economy.
Tax receipts from tourism are both direct and indirect. Direct tax receipts are generated from the incomes earned by businesses and workers. Indirect taxes are duties levied on goods and services purchased by tourists. The World Travel and Tourism Council estimates that tax contributions related to tourism worldwide were US $800 billion in 1998.
Tourism is a monopolistically competitive industry. It has many relatively small enterprises producing slightly differentiated products and services. Barriers to entry and exit are relatively low. For these reasons, the tourism industry provides tremendous opportunity for relatively small businesses to thrive and is a leading generator of jobs. The hotel accommodation sector alone provided around 11.3 million jobs worldwide in 1995, according to the United Nations Environmental Programme (UNEP). Tourism generates jobs directly through hotels, restaurants, nightclubs, taxis, and souvenir sales. Indirectly, jobs are generated through the supply of goods and services required by tourism-related suppliers. The WTO estimates that tourism represents 7% of jobs worldwide.
Injections and Leakages: The Multiplier Effect
Macroeconomic theory teaches that any injection into the circular flow of income of a country will start a multiplier effect. An initial change in autonomous spending generates a magnified effect on total spending through many rounds of spending and re-spending. Each subsequent round of spending gets smaller and smaller because of leakages, but the overall effect is still much greater than the original injection. For example, if tourism spending were to increase in a given country by, say $100 million, then the businesses and workers that received the $100 million would re-spend some fraction of that amount. One person's spending has become another person's income. The fraction of a marginal increase in income that is spent is called the marginal propensity to consume (MPC). The fraction that is not spent is called the marginal propensity to save (MPS). The multiplier coefficient is 1/(1-MPC) or 1/MPS.
For example, suppose $80 million of the initial $100 million increase in tourism spending is re-spent and the remaining $20 million is saved. In this case, the MPC is 0.8 and the MPS is 0.2. The multiplier is 1/(1-0.8) or 1/0.2 = 5. That means that the initial increase in spending of $100 million will eventually generate a five-fold increase or $500 million in total spending!
However, there are other leakages besides saving. The two main leakages (other than saving) related to the tourism industry are taxes and related imports. Taxes are forced saving. Also, an import leakage related to tourism arises because many tourists demand standards of products that the host country cannot supply. These products must be imported by the host country to satisfy the consumer tastes of foreign tourists. According to the United Nations Conference on Trade and Development (UNCTAD), the average import-related leakage for most developing countries is substantial, between 40% and 50% of gross tourism earnings for small economies, and between 10% and 20% for most advanced and diversified economies.
Taking into account all of the leakages -- the marginal propensity to save (MPS), the marginal rate of taxation (MRT), and the marginal propensity to import (MPM) -- the actual multiplier effect for tourism may be relatively low compared to other spending injections (such as an increase in government spending). For example: If the MPS is 0.2, the MRT is 0.1, and the MPM is 0.2, then the tourism multiplier would be 1/(0.2 + 0.1 + 0.2) 1/0.5 2. An initial increase in tourism spending of $100 million would only generate $200 million in total spending -- not $500 million!
The multiplier principle works in reverse. That is, an initial decline in tourism spending generates a magnified negative impact on total spending and employment. War, terrorism, crime, and natural disasters can have this effect on the tourism industry. However, until the September 11 terrorist attack and the subsequent fallout, the worldwide tourism industry has managed to weather these adversities. During the Gulf War, for example, growth in global tourism revenues plummeted from 21.5 per cent in 1990 to just 3.2 per cent in 1991. That is a slowdown in the rate of increase -- not an absolute decline; and the following year revenue growth rebounded to 13.5 per cent.
On the other hand, there have been instances in specific countries where an adverse event affecting tourism has brought about a negative multiplier effect on the nation's economy. On November 17, 1997, a terrorist attack targeting visitors to the Temple of Hatshepsut in Luxor, threw Egypt's tourism industry into turmoil. The negative effect of the Luxor tragedy is clearly reflected by the data. Visitor arrivals to Egypt declined by 13.8 per cent from 1997 to 1998. Egypt's international tourism receipts decreased by 45.4 per cent in1998 compared to 1997. Egypt is one of those countries in the world in which tourism is a substantial share of overall economic activity. Tourism is Egypt's second largest foreign exchange earner, and Egypt accounts for 50 per cent of all tourist arrivals to Africa and the Middle East.
There are other countries like Egypt that are vulnerable to the adverse economic effects of terrorism on tourism, because tourism is such a significant part of their overall economic activity. Jamaica is an example. Others are less vulnerable to the ill effects of terrorism on tourism, because their economies are more diversified. Japan is a good example. The table below shows international tourism receipts as a per cent of export earnings for selected countries around the world. Countries with a high percentage are more at risk to any decline in tourism and travel.

International Tourism Receipts:
% of Export Earnings (1998) Argentina 17.2
Australia 10.2
Canada 03.8
China 06.1
Czech Republic 11.0
Egypt 19.0
France 07.7
Germany 02.6
Greece 25.4
Israel 08.3
Italy 09.6
Jamaica 35.4
Japan 00.9
Jordan 23.5
Mexico 06.1
Netherlands 03.0
New Zealand 10.9
Poland 18.3
Portugal 14.0
Russia 07.4
Spain 18.7
Switzerland 06.5
Syria 24.1
Tanzania 49.8
Turkey 14.3
United Kingdom 05.6
United States 07.6
Uruguay 16.4
Source: The World Bank Group: World Development Indicators
That the terrorist attacks on September 11 occurred in the United States is particularly ominous for the global tourism industry. Americans are the world's biggest spending tourists. According to the WTO, Americans spent US $60.1 billion on international travel in 1999, followed by Germans at US $48.2 billion and Japanese at US $32.8 billion. According to the Travel Industry Association of America, total travel expenditures in the United States amounted to US $520 billion in 1999. US $445.6 billion of this total (85.6%) was spent by U.S residents, and US $74.4 billion (14.3%) was spent by international travelers visiting the United States. If Americans avoid traveling and foreigners avoid visiting the United States, then the worldwide travel and tourism industry faces a truly dismal outlook in the years ahead.
No one is sure for how long this slump in the worldwide tourism industry will last. It all turns on how quickly confidence can be restored in the minds of potential travelers regarding airline safety and convenience. If the global coalition of countries combating terrorism is successful at rounding up terrorists, destroying their networks, and confiscating their finances, then perhaps confidence will be restored and international travel will return to some semblance of normalcy. The fact is, however, that the images of what happened in New York City, Washington, D.C. and Pennsylvania on September 11, 2001 will not soon fade.
Images are the property of and have been modified with permission from:
NVTech.
Sources and Recommended Links
http://www.world-tourism.org/
http://www.worldbank.org/data/wdi2000/globallinks.htm
Regional Effects of Terrorism on Tourism in Three Mediterranean Countries
Department of Economics & Finance Southern Illinois University Centre for European Integration Studies (ZEI) University of Bonn, Germany
A consumer-choice theoretical model is developed to test the regional effects of terrorism on competitors' market shares in the tourism sector where involved countries enjoy significant tourism activities but are subject to a high frequency of terrorist attacks. Using data for three Mediterranean countries—Greece, Israel, and Turkey—for the period from January 1991 to December 2000, results show significant own and spillover effects of terrorism on market shares. Terrorist incidents are decomposed to better identify the impacts of terrorism on tourism. Significant contagion effects of terrorism on market shares in the region are documented, as is evidence of the effect of terrorism on the substitutability between countries.
Analysis Effect of Terrorism toward Tourism by Intervention Model
Intervention model is a time series model that can be used for describing and explaining the effect of an Intervention caused by external or internal factor which happens on a time series data. In general, this model can also apply for modeling time series with change in regime. The aim of this paper is to discuss the results of theoretical and empirical studies about intervention model, particularly pulse function intervention. Theoretical study is focused on the derivation of statistics terms that be used as basic for determining the order of intervention model. Then, the results of this theoretical study are applied to construct a model building procedure of intervention model. Finally, the effect of the first Bali bomb to the occupancy level of five star hotels in Bali is used as a case study. The data are observed starting from January 1997 to September 2005. In this case, the first Bali bomb that happens on October 12th, 2002 is an intervention of external factor whose effect will be evaluated. The result of this empirical study shows that interventional model can describe and explained exactly the quantity and the length of the first Bali bomb effect toward the decreasing of the occupancy level of five star hotels in Bali.
COUNTRY IMAGE AND ITS EFFECTS IN PROMOTING A TOURIST DESTINATION
The effects of country image on a tourist destination. The case in point South Africa’s image has suffered largely from its derogatory history. With an alarming increase of crime and terrorism activities, tourists are averse to travel to destinations curbed with the image problems. The purpose of this thesis is to re-evaluate the existing theories on country image and contribute to the previous studies that have listed the main attributes of country image rather than “image” construct per se. Country image encapsulate geopolitics, history, personal factors, information sources, and geographical dispensation. Analysis: Collected data has been analyzed by means of comparing, classifying significant characters and transforming raw data to meaningful information which assisted in corroborating the selected theory against the case study. Conclusion: Promoted image brand should always reflect the reality of a destination in question. The case in point SA has a room for a makeover of its image as a safe destination. Arguably, country’s image can be overhauled by reviewing curbing factors that were identified in this study. Notably, some of country image aspects as history and geographical dispensation can not be altered or easily manipulated. However, application of relevant marketing strategies as events and deeds were found relevant in SA context. Inevitably, successfully facilitation for the FIFA 2010 (events) could advance SA’s country profile in terms of trade, investment and tourism.
1. Introduction
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 shows how the multiplier effect can work in reverse. For example, an initial decline of tourism may cause a negative impact on employment, homelessness, crime and other economic and social implications which are caused by terrorism, crime and the closure of borders.
There are a number of supporting case studies where these terrorist attacks have caused a number of problems for tourist activity in a country including Egypt and the governments confrontations with al-gama’a al-Islamiya where they targeted international tourists in a five year period from 1992, as well as Kenya where tourism has declined due to the bombing of a US embassy in Nairobi, the beach hotel in Mombassa in 2002 and the failed missile strike against a plane carrying Israeli tourists. However, referring back to the multiplier effect, tourism had managed to sustain any continuous loss of negative tourism growth after a terrorist attack in their relative country until the September 11th attacks which changed tourism’s relationship with terrorism significantly. This involved the hijacking of planes by al Qaeda in New York. The industry had taken a few declines throughout its existence for example during the Gulf war where global tourism decreased from 21.5% in 1990 to 3.2% in 1991 a but this soon improved to 13.5% in 1992. However, with the September 11th attacks the tourism industry was at a peak with high passenger numbers and success from the major tour operators and therefore the implications were even more dramatic not only for the tourism sectors in America but globally and arguably causing general economic problems worldwide due to the negative multiplier effect.

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