Impact of geopolitical risk on tourism demand: evidence from asymmetric NARDL approach

Abstract

PurposeMany tourism academics have investigated the linkages between tourism, power and space; few have specifically addressed the profound links between tourism and geopolitics. In view of the restrictive assumptions of the linear framework used in the earlier studies, and hidden asymmetries present in the time series data. Against this backdrop, the study tries to find out how tourists may respond differently to favourable and unfavourable shocks in geopolitical risk (GPR).Design/methodology/approachIn order to capture this asymmetric nature of the problem, the study employs the non-linear autoregressive distributed lag (NARDL) model to evaluate data from 2001Q1 to 2019Q4.FindingsThe results show that both positive and negative shock to GPR does not produce results of equal magnitude. A positive shock to GPR has a more detrimental effect on foreign tourist arrivals (FTA) than a beneficial effect a negative shock produces. Besides this, the present study also looks at the effect of other macro-economic variables on FTA. An ascend in the real effective exchange rate (REER) i.e. appreciation of the domestic currency has an unfavourable impact on foreign visitor arrivals, while an increase in world gross domestic product amplify it. The results of the study are robust to alternative measures of the control variable.Practical implicationsThe study is significant for policymakers in understanding the short and long-run implications of GPR on FTA in India. The present study can assist policymakers, and destination managers to manage the external and internal risks and minimise the consequences of geopolitical threats on the Indian tourism industry. Consequently, destination managers can utilise the study's findings in calibrating their operations and designing crisis marketing strategies within the geopolitical dynamics of the Indian state.Originality/valueThe study tries to find out how tourists may exhibit distinct reactions to positive and negative disturbances in GPR. The study provides first-hand evidence of how GPR impacts tourism demand. The paper also includes the existing body of literature related to GPR factors and their effect on tourist influx, specifically in the framework of the Indian tourism sector.