What causes tourists to flee conflict: proximity or perception? (PROPER)

Commissioned by: The Institute of Economics, Zagreb (Tvoj grant@EIZ)
Project duration: from February 17, 2017 to September 30, 2017
Project manager: Marina Tkalec, PhD
Collaborator: Ivan Žilić

Brief outline:
Tourism is especially sensitive to conflict, war, violence, and terrorism. From March to June 1999, NATO was bombarding Serbian territory in order to end the conflict in Kosovo. Although Croatia does not directly border with the autonomous province of Kosovo, the instability in the region at the time influenced the Croatian economy to a large extent, tourism in particular. Aggregate data suggest that tourist arrivals in 1999 dropped by 725 thousand and overnight stays by 4.726 million (almost entirely attributed to foreign tourists) when compared to the previous year.  

Although conflict affects tourism, there is no research that identifies possible channels through which these effects propagate. We look into the dominance between two possible channels, proximity to conflict areas or perception of a location as unsafe due to nearby conflict or conflict that could spread to the location of interest. As far as we are aware, not a single study uses the exogenous and one-off variation in the Kosovo conflict of 1999 to study wide economic effects. We use the conflict in Kosovo and the country Croatia as a quasi-natural experiment and we take advantage of the specific north-west to south-east orientation of Croatian Adriatic counties to identify the channels.  

Since we lack the usual treatment and control, we are implementing the regression of differences-in-differences (D.D.) methodology, as Angrist and Pischke (2014) suggest. Instead of direct comparison of companies and sectors, D.D. considers their mutual differences. In the first part, we will treat tourist companies in order to determine the effect of conflict on tourism results. In the second phase, we will treat the tourist companies that were geographically closer to the conflicts, while those further up north won't be taken into consideration. That will enable us to decide on the domination of the channel of effect, closeness or perception. We intent to perform different robustness checks in order to corroborate our results. We will exhaust all possible sources that could drive our results; for example the size of the firm, the specific activities they do (catering or accommodation), type of ownership, different financial indicators. We can use rigorous rules to position a firm into the tourist sector, resulting in a smaller number of firms, or more relaxed rules that will result in a larger number of firms.