Description:
A consumer-choice model developed by Enders, Sandler and Parise (1992) is utilized to study the regional effects of terrorism on competitors' market shares in tourism sector where involved countries enjoy significant tourism activities but are subject to high frequency of terrorist attacks. The theoretical model is tested for three Mediterranean countries, namely Greece, Israel, and Turkey, for the period from January 1996 to December 1999, using the seemingly unrelated regression model. Italy is used as a control variable in estimations, acting as a proxy for tourist activities in the rest of the Mediterranean region and providing an additional destination for tourists to visit. Evidence indicates that the tourism industry in Israel and Turkey are more sensitive to terrorism incidents than in Greece. There are also significant regional contagion effects of terrorism. We find that a higher level of terrorist incidents in Greece is associated with an increase in the relative market share of Israel in the region, while terrorism in Israel benefits Turkey’s market share. We also document evidence that the location (urban versus rural) and the intensity of terrorist incidents play an important role in the decision-making process of tourists for choice of destinations. Policy implications of our findings are also discussed.