Terrorism explained

Terrorism is currently one of the most serious risks to global tourism and the economy. It comes in a variety of forms and shapes, and it has been on the rise for the past two decades (Combs, 2015). Terrorism impacts diverse places of the world; for example, the United States suffered terrorist attacks on the World Trade Center in 1993 and the Oklahoma City bombing in 1994. Terrorism has received a lot of attention in the last decade, despite the fact that it is still relatively unknown (Llorca-Vivero, 2008). Terrorism has an impact on the economy and business ventures. Terrorists today are so intent on causing harm to society that targeted states give in to their demands. The harm can be human or economic losses (Kellner, 2015). The losses expose the state’s incapability to safeguard a nation’s assets thus causing losses to the confidence of the citizens and the legitimacy of the state.

Koroma (2011) expresses that terrorism is merely like any other crime activity committed in the society. Numerous steps are undertaken to avert the occurrence of crime; nonetheless, there are inadequate resources, for instance, manpower and funds to examine each inch of the world to eliminate terrorism threats (Koroma, 2011). According to Henderson (2008), widespread steps have been taken in the monitoring of the terrorist groups and the prosecution of the individuals that are identified as members of the terrorist organization. According to Sonmez (1998), terrorism is the calculated utilization of violence against the civilians to achieve religious or political goals. Nevertheless, Enders et al. (2008) express that terrorism is the planned utilization or the threat of violence utilization by the people or sub-national collections to get a social or political aim by intimidating a large audience a far that of the immediate individual who is the victim; thus, it has a driven objective.

Impact of International Terrorism on Global Tourism

According to Baker and Coulter (2007), terrorism acts strike dread into the public and result in a transformation in the regular travel behavior owing to the innate human reaction to fear. Henderson (2008) articulates that the acts of the terrorist make the tourists to recurrently ask themselves their safety on the trip. The terrorist acts can discourage an individual from making a trip for several month or years when the possibility of terrorist acts increases owing to the levels of the threat (Henderson, 2008).

After the attack, Bali was deliberated to be a nation of political instability and the place highly targeted by the terrorist organizations. The tour operators rapidly withdrew their holiday programs in a week and the resorts throughout Indonesia merely as the high season for the terrorists from the Northern Hemisphere was almost beginning (Baker & Coulter, 2007). Baker and Coulter (2007) noted that together with the hotel occupancy, there was a 23% decrease of tourists who visited Bali between June and September the year after the bombing. Tourism and vacation are both perishable items that cannot be stored and placed on the shelves for later utilization. The terrorist acts have lasting adverse effects on a nation’s revenue that may not be recovered (Coaffee, 2016).

Many studies propose logical socioeconomic and cultural explanations of the terrorism-tourism relationship. In a study of terrorism in Sharm el-Sheikh, Aziz (1995) counter-argues the misapprehension that Islam is against foreign tourists outright with its socioeconomic justification. Aziz argues that tourists and local people are distinguished not only by language but by social and economic gaps as well (Aziz, 1995). When locals facing hardship are forced to coexist with wealthy international tourists enjoying luxuries, friction is unavoidable. This supports Richter and Waugh (1986) submission that travel styles can be demonstrative of ideological values, class behavior, and political culture of tourists and their countries. Therefore, tourists may be the targets of terrorism because of their tourism styles which may demonstrate conspicuous consumption. Unavoidably, umbrage created against tourism can turn into dangerous forms of bitterness. This theory is put forward as a possible clarification for Egyptian frustration with tourism (Aziz, 1995).

Terrorism impacts tourism in the afflicted regions and nations. A study carried out by Enders et al. (1992) examined tourism data for the seven Western European nations that covered the duration from 1968 to 1988 and revealed that terrorism deterred tourists from some specific nations, nonetheless, not all nations. Terrorism caused a decrease of six million tourists in Turkey from January 1997 to December 2006. It decreased tourism spending by approximately seven hundred million dollars in 2006 (Yaya, 2009).

The World Travel and Tourism Council (2014) forecasts over the next ten years look extremely favorable, with foretold growth rates of over 4% annually that remains to be higher than growth rates in other sectors. Capitalizing on the opportunities for this travel and tourism growth will definitely necessitate destinations and regional authorities specifically those in emerging markets to create a successful and sustainable tourism sector business climate for investment in human resource support and infrastructure (World Travel & Tourism Council, 2014). The government does much to implement tight security at the national level, more so in visa regimes and to employ intelligent pretty than punitive taxation policies. Despite tourism economic strength, terrorism and political turmoil present major challenges to the industry (Smith, 2014).

The international tourism helped numerous developed and developing nations to generate an income; for instance, tourism accounts for approximately 9.2% of the gross domestic product of Brazil. Besides, tourism accounts for nearly 8.4% of the gross domestic product of the US (DePuma, 2015). American air travel lost roughly $5 billion in 2001 (Sugiyarto et al., 2002). The figure below shows the total number of passengers boarding a flight in the US in millions between 1996 and 2005. The graph indicates that America was greatly affected by the 9/11 terrorist attacks specifically between 2001 and 2003.

The passengers boarding flights in the US, millions

Source: Bureau of Transportation Statistics

A research conducted by Drakos and Kutan (2003) on the impacts of terrorism on tourism in Turkey, Israel, and Greece utilizing monthly data between January 1996 and December 1999 revealed that the nations receive numerous tourists regardless of being vulnerable to attacks by the terrorist. Through the utilization of apparently dissimilar regression model, they found that terrorism adversely affects tourism and the effects of substitution are present amongst these nations. The higher number of attacks in Israel by the terrorists resulted in an increase in the number of tourists visiting Greece. Moreover, they discovered that the intensity of terrorist attacks influences the decisions of the tourists.

Weimann and Winn (1994) suggest that terrorist activities have a major impact on international tourism of a country with the largest economic factor in the equation between terror and foreign tourism. This means terrorism obviously affects the flow of foreign exchange into a country because of its negative impact on international tourism (Weimann & Winn, 1994).

Impact of International Terrorism on Economy

There are different sources of economic costs imposed by terrorism acts. These comprise a decrease of the future stock capital and foreign direct investment, the opportunity costs of the prevention of terrorism, and destruction of the infrastructure (Graham, 2008). The indirect costs of terrorist attacks comprise extra advertising expenditures essential for attracting new tourists and expenses on security enforcement to reduce imminent terrorist threats (Baker, 2014).

Terrorism campaigns result in governmental expenditures on the defensive actions to harden targets and the proactive measures to capture the terrorists and their entire assets. The augmented state’s expenditure on security may crowd out more growth improving private and public investments. According to Blomberg, Hess, and Orphanides (2004) and Gaibulloev and Sandler (2008), public investments in the form of the social overhead capital, including highways, bridges, and canals, are vital in strengthening the growth in the developing nations.

Terrorism hampers economic growth through increasing the cost of undertaking business with regard to larger insurance premiums, higher security expenses, and higher wages. The higher costs lead to decreased profits leading to smaller returns on the investment (Gaibulloev & Sandler, 2008). Moreover, terrorist attacks can devastate the infrastructure of a nation resulting in disruptions of businesses. For instance, the IRA attacks that took place in the London’s financial district on April 10th, 1992 at the Baltic Exchange had led to approximately £800,000, 000 direct damages. The Bishopsgate attacks on April 24th, 1993 resulted in almost £350,000,000 in the direct damages (Gaibulloev & Sandler, 2009).

Another research was carried out by Abadie and Gardeazabal (2003) to measure the effect of terrorism on the Basque region’s economy. It involved the utilization of the ceasefire truce that occurred in September 1998 as an innate experimentation to assess the effect of violence. They concluded the stocks of the companies with considerable existence in the Basque region demonstrated considerable constructive performance as the ceasefire becomes credible. Nevertheless, the stocks suffer unconstructive performance as the cessation of the hostilities comes to a culmination. Furthermore, Abadie and Gardeazabal build a counter-factual Basque area from the regions that were similar to the Basque economically before the breakout of the conflict in the 1970s. The study revealed that the gross domestic product per capita for the region of Basque decreased by 10% compared to its counter-factual control zone. The gap widened after the spikes of the events of terrorism (Abadie & Gardeazabal, 2003).

The impact of terrorism is physically destructed and measurable. Current plants, machines, transport systems, workers and other economic resources are being eliminated by terrorists (Institute for Economics & Peace, 2014). The acts of terrorism blow up cafes, churches, and roads on a small scale. Billions of dollars’ worth of property and thousands of industrious workers were destroyed senselessly by the World Trade Center bombings on September 11th, 2011 on large scale attacks. The main impact of terrorism is negative for the economy since it appears as the physical destruction at large. Productive resources generate valuable goods and services destroyed whereas other resources are invariably diverted from another productive dynamic to strengthen the military and defense (Estrada et al., 2015). Terrorizing the economy never creates wealth nor adds to the standard living although the military spending is often erroneously cited as a stimulant thus becoming the broken window fallacy sometimes mentioned by the economists (Asad et al., 2015).

Terrorism associated uncertainty affects other essential aspects of the economy, including trade. Terrorism decreases the flows of bilateral trade since the strict border regulation adds to the cost of the transaction. It redirects some trade from the neighboring nations to far nations (Fratianni & Kang, 2006). Likewise, Nitsch and Schumacher (2004) utilized data on 200 nations between 1960 and 1994 and found out that a 100%increase in the terrorist attacks declined the bilateral trade by 4% (Nitsch & Schumacher, 2004). Researchers have been neglecting the effects of terrorism on the image of the destination nations. However, Witt and Moore (1992) examined whether or not encouraging special occasions generated sufficient tourism interest to outweigh the Northern Ireland’s negative external image caused by terrorism. They determined that there was a need for Northern Ireland to pay more consideration to overcome their undesirable image and the need to increase inbound tourism. Unluckily, they only recommend on increasing visitation instead of solutions to overcome the nation’s undesirable image (Witt & Moore, 1992).

Another study was conducted by Karolyi and Martell (2006) to investigate the effect of 75 terrorist attacks against companies on their assessment. The study results indicated a statistically significant adverse effect of nearly 0.83%. The outcomes differ relying on whether the attack occurred in the human or the physical capital. They found out that the attacks against the human capital, such as kidnapping a company’s executives, results in greater losses in the prices of stocks as compared to the ones originating from the attacks against the physical targets, for instance, buildings and facilities (Karolyi & Martell, 2006). Moreover, they discovered that attacks in the democratic and wealthier nations lead to an enormous decrease in the reactions of the share price.

In a study of flows of United Kingdom travelers to a variety of air passenger destinations, Coshall (2003) established that the highly attractive destinations for UK travelers experience rapid recovery in the aftermath of a crisis. It is confirmed by the rapid lessening impact of the Libyan bombing on air travel between the US and the UK (Coshall, 2003). This supports the findings of other authors that travelers are extremely willing to substitute uncertain images for secure once a condition has simmered down (O’Neill and Fitz, 1996; Mansfeld and Kliot, 1996). The industry is obliged to conduct recovery marketing or fully integrated marketing with crisis management activities. Since it is often the first casualty of violence, a destination image makes recovery marketing imperative. Media coverage of terrorism or political upheaval has the potential to shape individuals’ images of destinations. It is argued that a symbiotic correlation occurs between terrorists and journalists and that terrorism is both a symbolic event and a performance staged for the benefit of media attention (Weimann & Winn, 1994).

When individuals do not stay anywhere around the terrorist attacks, someone might still be negatively impacted indirectly. It is because all kinds of markets dislike hesitation and terrorism generates a lot of it (Nacos, 2016). There are plenty of debates about the complexity and extensiveness of actual impact on financial markets. Real threats of global terror from an investor’s perspectives are about the broader picture and not individual incidents. Investment and cooperation are lower internationally in the world of terrorism (Husain, 2017). The two obvious industries that are especially vulnerable to the effects of terrorism include insurance and tourism (Karl et al., 2016)). The impact of insurance companies to pay out in the events of international terrorism or foreign wars is less effective than anyone can expect.

In France, tourism accounts for almost 8% of overall gross domestic product (van Niekerk & Pizam, 2015). Vanguelis Panayotisa, the director of MKG tourism consultancy, expects 30% decline in visitors to France during the month after the attacks on a broader scale. Terrorism damages international trade due to impending threats, including compromised trade networks and the supply of systems, because of both psychological and physical responses to terrorism. It results in less foreign direct investment particularly in unstable countries (Sonmez & Graefe, 1998).

Reactive governments and anxious citizens are far more inclined to give up economic and political freedoms in exchange for safety during periods of conflict. This results in higher taxes, government debts, and inflation (Shin, 2015). Governments frequently implement charge controls occasionally or the nationalization of industries during wartime being less active at handling resources for fruitful economic activity than private individuals, especially when the resources are designated to achieve a strategic military objective (Cutter et al., 2014). The private economy suffers when governments militarize as they control the stay of a person in a place for long after military campaigns end (Meierrieks & Gries, 2013).

The US economy suffered from losses owing to the terrorist attacks a lot. Numerous tourists from distinct nations decreased due to the attacks. At the culmination of 2001, the tourists’ number was decreased by half, wherein Japan had -45%, Germany -46%, and Brazil -49% (Vovk, 2015). Belau (2003) articulates that the accommodation sector had a decrease of roughly 6.5% owing to the decrease in the in the tourist influx. The trips overseas from America declined from almost 60.9 million to roughly 54.2 million departures between 2000 and 2003 (Belau, 2003). The federal government of the US faced difficulties in reducing the budget. The 9/11 terrorist attacks functioned as a crisis catalyst that displayed economic glitches, security hitches, and lack of financial resources (Kurtz et al., 2014). The 9/11 attacks had a negative impact on the economy of many nations. The travel industry was greatly affected because many visitors from the global nations and domestic individuals were reduced. Above 80,000 people lost their employment in the industry (Belau, 2003).

Bianchi (2006) expresses that the capability to travel around the world for purposes of enjoyment and in comparative safety is a quite current marvel and merely 3.5% of the population of the world participates in the worldwide travel. Tourism is classically considered as a key industry in many countries because it is comparatively low in energy consumption and pollution (Altindag, 2014). On the other hand, terrorism leads to decrease in foreign direct investment among numerous nations across the world. Ball, Geringer, McNett, and Minor (2013) notes that the foreign direct investment involves buying of adequate stock in an oversea company to get considerable management control (Ball et al., 2013). Moreover, terrorism negatively influences tourism through decreasing the arrivals of tourists. The persistent terrorist attacks can result in a considerable decline in the foreign direct investment amongst distinct nations in the world (Bac, Bugnar & Mester, 2015).

According to Bandyopadhyay and Younas (2014), the decision to invest in an overseas nation is reached after the anticipated return, and the related risk had been weighed against other opportunities within the home country. As the main source of foreign technology and capital, the foreign direct investment is utilized to aid economic growth in the developing nations (Bandyopadhyay & Younas, 2014). When terrorism minimizes the foreign direct investment contributions into countries, their economic development and growth can be considerable minimized (Asongu, Efobi & Beecroft, 2015).

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