ABSTRACT
Turkey is one of the most advanced economies in the MENA region and one of the most important tourist destinations in the world, but with a long lasting history of terrorism that has significantly increased during the last years after the Syrian Civil War. This paper uses an updated sample of quarterly data on GDP, inbound tourism and terrorism to explore the relationship between tourism and economic growth adding information on terrorist activity. Different specifications of cointegrating regressions are used to quantify the impact of terrorism on the relationship between tourism demand and economic growth, including the novelty approach of a threshold cointegrating regression, where the stationary transition variable is given by a standard measure of terrorist activity. Results show that, with a delay between three to six months, and even for a relatively small number of estimated terrorist attacks, there is a negative impact of terrorism on real GDP of around 10% through a reduction of the contribution of tourism demand on economic growth.
