Determinants of Tourism in France & Economic and Social Effects of Terrorism

The goal of this research is to identify economic and social impacts of the terror attacks in France during 2015 and 2016. Three large scale attacks in Paris and Nice within two years shocked the nation, with consequences felt both domestically and throughout the world. Specifically, the research aims to identify economic effects of terrorism on France’s tourism industry, as well as the determinants of tourism and travel. The research will also analyze the response of the French public, government, and media outlets to the attacks, along with the reactions of neighboring countries who have also witnessed terror attacks within their respective borders. By studying both the economic and social effects of terrorism within France, the true cost of terror attacks will be identified and discussed. Chapter One: Introduction France is a nation well-known across the world as a premier tourist destination, with many cities and attractions visited by millions each year. The capital city of Paris, with the Eiffel Tower and many art museums is a top destination, along with southern beach cities Nice, Marseille, and Cannes. Bordeaux sits in the heart of French wine country, and many smaller towns in the southeast bordering the Alps attract winter sports enthusiasts from around the world. According to the World Travel and Tourism Council, the total contribution of travel and tourism to France’s 2015 Gross Domestic Product was 199.3 billion euros, or 9.1% of total GDP, with a predicted increase of 3.1% in 2016. In absolute size, this contribution to GDP ranks 6th out of 184 countries. Therefore, the tourism industry in France makes one of the largest contributions to GDP anywhere in the world (WTTC, 2016). The tourism industry is also very important when it comes to French employment statistics. In 2015, tourism accounted for 4.2% of total employment in France, or 1,170,500 jobs, with a predicted increase of 2.1% in 2016 (WTTC, 2016). Together, these statistics demonstrate the importance of tourism to the French economy as a whole. On January 7 and November 13, 2015, the city of Paris, France, was devastated by terror attacks on the Charlie Hebdo newspaper building, and the Bataclan theater and Stade de France, respectively. The Charlie Hebdo attackers, identifying with the terror group Al-Qaeda, killed 11 people and injured 10 before they were stopped by police two days later. On November 13, attackers killed 130 people and injured another 368; the next day, the terror group ISIL claimed responsibility for the attacks, the deadliest in France since World War II. Finally, on July 14, 2016, a massive cargo truck was intentionally driven on to Nice’s Promenade des Anglais, the site of a large gathering to celebrate Bastille Day, a national holiday. The rogue attacker drove through the crowd, causing a toll of 86 deaths and 434 injuries, deepening the sadness of an already grieving nation. This research will aim to identify the determinants of tourism in France using a historical analysis, including variables such as GDP per capita, exchange rates, stability indicators, trade flows, regime, and special events such as the Olympics or global expositions. From these variables, this research will define the main determinants of tourism in France through several decades. This study will then determine the effects the recent terror attacks had on France’s tourism, related businesses, and employment, as well as the nature of the tourism industry after the attacks. Since tourism accounts for a significant proportion of France’s Gross Domestic Product, a sharp decline in inbound tourism activity will reverberate throughout France’s economy as a whole, causing losses in profit for businesses directly and indirectly related to tourism, as well as potential unemployment in these sectors. This topic is very salient because the attacks were as recent as this past summer of 2016 in Nice, thus this is a very legitimate question facing not only France, but other countries that have recently experienced terrorist attacks such as Belgium and Turkey. With terror attacks by organized groups such as Al-Qaeda and ISIL, as well as “lone wolf” attacks inspired by these groups, tourists may be dissuaded from taking trips to foreign countries, which will impact the domestic tourism industries, especially in France, one of the world’s most visited countries. The World Tourism and Travel Council reports that in 2015, 82% of travel and tourism’s contribution to France’s GDP originated from leisure spending, thus a decline in tourists attracted to the country for leisure will have a negative effect on the tourism industry, related businesses, employment, and therefore France’s overall Gross Domestic Product (WTTC, 2016). Chapter Two: Literature Review Statistics from the World Travel and Tourism Council state that the tourism industry and related revenue are very important to France’s economy. Thus, if the industry is expected to grow, can the same be expected for the economy? Cárdenas-Garcia et al. (2013) acknowledge that there are two main viewpoints surrounding the concept of tourism as a tool for economic progress; the first being that tourism is not the primary driver for socio-economic progress. However, the second argues that tourism has in the past become a tool for progress in certain countries. Cárdenas-Garcia et al. state that tourism has become an “effective tool” for countries that host a large number of tourists. When compared among many countries, the economic results are mixed (CárdenasGarcia et al., 2013). In principle, the authors suggest that the expansion of tourism in a country can result in economic growth, and be a critical part in achieving real economic development. The authors’ research questions whether the growth of tourism in countries enhances their respective level of economic development, and the research used a sample size as large as possible, 144 countries. For the construction of a correlation, the authors use both tourism growth variables and economic development variables. Two variables of tourism growth important in their research were direct contribution to employment (DCE), which measures the direct number of jobs generated within the travel and tourism industry, and international tourism exports (ETI), which includes the expenditure by international tourists in the country, both for business and leisure travel, including the cost of transport. When studying the effect of tourism on overall economic progress, it is essential to include these two variables, as these will reflect the overall health of the industry in the country of study. In the study, both DCE and ETI were found to have a statistically significant correlation at 5% on direct contribution to GDP (DCP). In their conclusion, the authors divide the 144 countries of study into two groups. The first, Group A, comprises the more economically developed countries in 1991, and the second, Group B, includes developing or economically weak nations. For Group A, which includes France, it was discovered that the beta parameter was statistically significant at the 5% level, confirming the existence of a direct relationship between tourism growth and economic development, and also confirming that for some nations in Group A, tourism is a major activity and is an “essential pillar” of economic activity (Cárdenas-Garcia et al., 2013). Additionally, France was ranked third among the 144 countries, according to a synthetic index of economic development, scoring a 99.96 out of 100. Thus, the research concludes that France has one of the strongest relationships between tourism growth and economic development. Overall, Cárdenas-Garcia et al. produced valuable work in accounting for the different tourism growth variables in their model, such as ETI and DCE. These are two important statistics that could be included in a regression to determine the number of tourists in France for a given year, and will deepen the understanding of the effects of the terror attacks in France on the overall economic performance of the country, specifically via tourism. One of the main components of this research is to build a regression and historically analyze tourism data for France to determine effects of different variables on the number of tourists visiting the country each year. Thus, it is essential to identify variables to be used in this regression that could affect tourism flows from year to year. Eilat and Einav (2004) state that tourism accounts for nearly to almost 10% of international trade, thus a better understanding of what determines tourism is vital to achieve a better understanding of international trade and finance. When discussing their model, the authors accurately describe some of the disadvantages of variables such as exchange rates, which can be inaccurate if costs of tourism such as airfare and hotel stays are paid in advance, and income in the origin country, GDP per capita, of which the effects of income distribution on tourist trends are still “unresolved” (Eilat & Einav, 2004). As of 1998, France ranked as top tourist destination with 70 million arrivals, over 22 million more visitors than second-ranked Spain, with 72% of the arrivals being classified as “leisure”, as opposed to “business” travel. From this data, we can conclude that leisure tourism in France is a large component of overall tourism activity, and its tourism industry is one of the most vibrant in the world. The authors split their countries of study into two groups, High and Low GNP countries, with High GNP being classified as GDP per capita over $10,000 in 1998. In their results, Eilat and Einav found that travel to high GNP destinations “does respond” to price fluctuations, and is statistically significant at 1%. Additionally, it was concluded that no matter what classification of country, the destination risk variable was found to be significant at 1%, suggesting that risk in the destination count