Empirical investigation on the economic impact of terrorism and civil unrest on tourism industry in Kenya

Abstract

Tourism is one of the largest industries in which many open economies heavily rely on as a major revenue source. It is a delicate industry that is vulnerable to existing economic conditions, political violence/ unrest and terrorist activities. This study uses time series data of tourist arrivals for the period 1980 - 2004 to empirically investigate the economic impact of civil unrest / terrorist activities on tourism industry in Kenya. Tourist demand function with an error correction model was used to assess the impact of the explanatory variables on dependent variable. Terrorism and/or civil unrest can hinder tourism sector by keeping tourist away after an incidence. Kenya, like many countries, has experienced a series of civil unrest and two major terrorist attacks in the recent years, which have caused major fluctuations in tourist arrivals and slowed down the sector growth. Their effects have also been felt across the entire economy through reduced income earnings, increased unemployment, decline In GDP, low infrastructure development and homelessness. Terrorism and civil unrests are also associated with long-term indirect costs such as expenditures for advertising to attract tourist, rebuilding of tourist facilities and the provision of greater security measures to reduce terrorist attacks and deal with civil unrest incidences. Resources are therefore shifted from the production of essential goods and services to security-based issues. Analysis results have shown that there is a negative relationship between tourist arrivals and incidences of civil unrest and or terrorist attacks. However, other tested explanatory variables showed a positive relationship with tourist arrivals. Analysis results have also shown that in the long run, after an incident of civil unrest and terrorism, tourist arrivals trend reverts to its trend mean. This study proposes very sound policy suggestions, which need to be implemented to minimize incidences of terrorism/ civil unrest and improve the performance of the tourism sector in Kenya.