ABSTRACT AKTAS MEHMET CELALETTIN. The Effects of Terrorism and Political Instability on International Tourist Arrivals: A Focus on Turkey. (Under the direction of Dr. Kathryn Boys) Tourism is an important industry for many countries including those in Eastern Europe and the Middle East. For Turkey, the industry is both national and global importance; in 2017, Turkey ranked eighth in international tourist arrivals and thirteenth in tourism receipts. After 2010, however, the tourism industry in several Middle Eastern countries, including Turkey, suffered a loss of international tourist arrivals. As during this time, the Turkish currency was relatively devalued and there was no global economic crisis, the economic dynamics were in favor of an increase in international tourist arrivals in Turkey. During this period, however, the number of terrorist incidents increased and there was a period of political instability in Turkey. These circumstances offer an opportunity to examine the potential negative effects of terrorism and political instability on international tourist arrivals. A majority of previous studies which have examined tourist arrivals solely examine economic factors and disregarded non-economic ones which may affect arrival counts. This research fills the gap by analyzing whether non-economic context variables, such as political instability and terrorist incidents, influenced the Turkish tourism industry. Seven cases are analyzed which examine the impact of terrorism and political instability on tourist arrivals to Turkey on national and sub-national regions, over different time horizons (annual, monthly), and in considering the different motivations tourists might have to visit. To see if other countries are similarly affected by terrorism and political instability events, the tourism industries of Egypt and Tunisia are also considered. In the case of Turkey, terrorism had explanatory power in international tourist arrivals, but the magnitude of the effect was small. On the other hand, political instability had a significant negative effect on international tourist arrivals in almost every case. Separate analyses of each country showed that an increase in income increased international tourist arrivals to the destination country. Incidences of terrorism and political instability negatively affected tourism demand in Egypt and Turkey, while political instability and price level of products and services negatively affected tourism demand in Tunisia. The results are robust to heteroskedasticity and serial correlations problems. These results indicate that policy makers in these countries need to concentrate on after crisis promotion activities for their tourism industries. © Copyright 2019 by Mehmet Celalettin Aktas All Rights Reserved The Effects of Terrorism and Political Instability on International Tourist Arrivals: A Focus on Turkey by Mehmet Celalettin Aktas A thesis submitted to the Graduate Faculty of North Carolina State University in partial fulfillment of the requirements for the degree of Master of Science Economics Raleigh, North Carolina 2019 APPROVED BY: _______________________________ _______________________________ Dr. Kathryn Boys Dr. Mitch Renkow Committee Chair _______________________________ Dr. Carla Barbieri BIOGRAPHY Mehmet Celalettin Aktas was born in 1984 in Kastamonu and raised in Kastamonu and Antalya, Turkey. His Bachelor of Science Degree in Business Administration is from Middle East Technical University. After graduating, he was accepted to Kuveyt Turk Bank Middle Anatolian Region as a financial analysis and intelligence expert in financial analysis and intelligence and worked there for a year between 2008 and 2009. In 2009, he resigned from his post and was accepted to General Secretariat of European Union (later Ministry of European Union of Turkey) as an officer in 2010. In 2011, he succeeded in a highly competitive selection procedure of the State Planning Organization (later Presidential Directorate of Budget and Strategy) to be employed as a planning expert. Over his professional carrier, the fundamental working areas were Turkish development assistances and projects of the Standing Committee for Economic and Commercial Cooperation of the Organization of the Islamic Cooperation. In this regard, he evaluated many international projects and helped design international programs. He wrote the thesis on global public goods. He graduated from the NC State University Poole College of Management in 2019 with a high degree of success in all courses and earned a Master of Science Degree in Economics. ii TABLE OF CONTENTS LIST OF TABLES .......................................................................................................................... v LIST OF FIGURES ....................................................................................................................... vi ACRONYMS ................................................................................................................................ vii 1 Introduction to the Study ......................................................................................................... 1 Research Problem ............................................................................................................. 1 Objectives of the Study .................................................................................................... 2 The significance of the Study ........................................................................................... 3 Hypothesis ........................................................................................................................ 4 Assumptions ..................................................................................................................... 5 2 Tourism and Political Instability in Turkey, Egypt, and Tunisia ............................................ 6 Tourism in the World ....................................................................................................... 6 History and Development of International Tourism in Turkey ........................................ 9 2.2.1 The Factors Boosting International Tourism after the 1980s ................................... 9 Tourism in Turkey .......................................................................................................... 13 2.3.1 Tourism Receipts and Its Impacts on Current Account .......................................... 16 2.3.2 Types of Tourism in Turkey ................................................................................... 17 2.3.3 Political Instability in Turkey ................................................................................. 19 Tourism in Egypt ............................................................................................................ 21 2.4.1 Political Instability in Egypt ................................................................................... 25 Tourism in Tunisia ......................................................................................................... 26 2.5.1 Political Instability in Tunisia ................................................................................. 29 3 Literature Review: Determinants of International Tourism Demand .................................... 32 International Tourism Demand ...................................................................................... 32 3.1.1 Economic Determinants of Tourism Demand ........................................................ 32 3.1.2 Terrorism and Political Instability Determinants of Tourism Demand .................. 34 Determinants of International Tourism Demand to Turkey as a Destination ................ 36 3.2.1 Economic Determinants .......................................................................................... 36 3.2.2 Political Instability and Events ............................................................................... 37 4 Data and Methodology .......................................................................................................... 38 Data Set .......................................................................................................................... 39 Methodology .................................................................................................................. 46 iii 5 Results and Discussion .......................................................................................................... 63 Case 1: Yearly International Arrivals Including Nights Spent ...................................... 63 Case 2: Yearly international tourist arrivals by Nations ................................................ 65 Case 3: Monthly Setting ................................................................................................. 68 Case 4: Monthly Arrivals by Nations ............................................................................. 70 Case 5: Arrivals at the City Level .................................................................................. 72 Case 6: Arrivals by Purpose ........................................................................................... 74 Case 7: Turkey, Tunisia and Egypt comparison and analysis ........................................ 77 6 Conclusion and Discussion .................................................................................................... 81 Study Limitations ..........................................................................................................