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

Maja Nikšić Radić

doi:10.3390/su10124553

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.

Highlights

Already at the beginning of this century, tourism has become the largest worldwide industry and its development continues [1]
Starting from the fact that, according to the authors’ knowledge, there is no research that examines terrorism as a determinant of attracting foreign direct investment (FDI) in tourism, and that the results of previous research related to the importance of terrorism as a determinant of attracting total FDI are not unambiguous, the gap in the existing research is recognized
The impact of terrorism on attracting FDI in tourism was explored using the panel of 50 countries for the period from 2000 to 2016

Summary

Introduction

Already at the beginning of this century, tourism has become the largest worldwide industry and its development continues [1]. According to World Tourism Organizatin’s World Tourism Barometer, in 2018, international tourist arrivals grew by 7% in 2017 and reached 1322 million. This figure will reach 1.8 billion by 2030 [2]. FDI (foreign direct investment) in tourism is very important for the further development of tourism, especially in the developing and less developed countries [4,5]. FDI enables host countries to be integrated into international tourism networks which will lead to increases in the flow of tourists and the generation of more income from tourism-related activities [6]. Tourism strongly contributes to foreign exchange earnings, national income and job creation [7]. As far as FDI in tourism is concerned, from 2003 to 2016, $352 billion in capital expenditure was spent on tourism, and from 39 sectors, tourism ranked 10th in terms of capital investment [5]

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