The Tremble of the Tremor: An Empirical Study on the Effect of Terrorism on International Tourism Demand in Europe

This thesis examines the effect of terrorism on international tourism revenue for 44 European countries throughout the period 2000-2015. The analyses focus on the impact of both frequency and severity of attacks. Only terrorist incidents with four or more casualties are considered. The severity of attacks is measured using a severity index, adjusted for frequency. These impacts are studied using ordinary least squares (OLS) regressions, controlling for both country and time-specific fixed effects. The results show that the incidence of terrorism negatively affects the tourism sector and this effect is still observed one year afterwards. Attacks of a higher value on the severity index are also detrimental to tourism demand. However, this effect is less statistically significant than that for frequency. While the losses may not appear sizeable, we argue that they are still significant. Hence, these outcomes can be applied to enlightened policymaking with regard to countering terrorism. More specifically, we signal to governments that they should spend more on national defence to minimise the severity of attacks.