Geopolitical risks and tourism in a developed economy: Hong Kong

Abstract

[eng] Geopolitical risk is one of the factors that affects the decisions of consumption and investment, and it is regarded a business threat in the world. In this thesis, we test the effect of geopolitical risks on tourism in Hong Kong during 2010-2019 by applying a vector autoregressive (VAR) model between tourist arrivals in Hong Kong and a recently introduced index – the geopolitical risk (GPR) index – to measure geopolitical risks, with 3 control variables – oil prices, global economic policy uncertainty (EPU), and the US equity market volatility (VIX). Our results reveal that geopolitical risk has a long-lasting negative effect on tourist arrivals in Hong Kong, although this effect decreases over time. We also find that this negative influence is more moderate in Hong Kong in comparison with other regions such as Turkey and India. Therefore, tourism in Hong Kong has stronger resilience than tourism in emerging economies. Our findings provide potential implications by advancing our understanding of how geopolitical risk affects tourism in a developed economy. Policymakers and the government should recognize the adverse effects of geopolitical risk and monitor the GPR index to avoid possible decline of tourist arrivals caused by geopolitical risk.