Does proximity to conflict affect tourism: Evidence from NATO bombing

Abstract

Although conflict, war, violence, and terrorism affect tourism, research that identifies possible channels of these effects is scarce. We explore if the adverse effects are channelled through proximity to conflict areas. We use the conflict in Kosovo in 1999 and the country Croatia as a quasi-natural experiment and take advantage of the specific north-west to south-east orientation of Croatian Adriatic counties to identify the effect of NATO bombing in Kosovo on tourism outcomes as well as the potential proximity channel. Using data on the population of Croatian firms and the difference-in-differences identification strategy we find that tourism companies’ revenues decreased significantly due to NATO bombing, especially in accommodation services and in companies with 50 or more employees. However, using a synthetic control approach we find that the adverse effect is only transitory. Analysing heterogeneous effects with respect to the distance of the firm from Kosovo—using a linear and a more flexible model—we find compelling evidence that within-country proximity to conflict is not a significant channel through which the negative effect propagates.

The effect of EU membership on tourism in Croatia

“…The covariates used are gross domestic product per capita, real gross domestic product, population density, population growth, real exchange rate, unemployment, employment, inflation, the share of household consumption, the share of exports, share of imports, share of agriculture, share of industry, secondary school enrolment, and tertiary school enrolment. ii Although some of these variables are available before 2000, those are excluded mostly due to the conflict in Croatia in the first half of the 1990s and the Kosovo conflict in 1999, both of which affected tourism in Croatia to a large degree (for more detail on the latter, see Tkalec and Žilić, 2021). The main source of data for this empirical part comes from Penn World Tables (Feenstra et al, 2015) that provide possible predictors, for Croatia, but also the broad set of countries defined as the donor pool.…”