Effect of political risk shocks on tourism revenue in South Africa: time series analysis

Abstract

Although political risk has an impact on all types of businesses, political risk affects tourism business performance in terms of tourist arrivals and tourism revenue because tourists are very sensitive to political risk in host countries. This study analysed the effect of political risk on revenue from the tourism industry in South Africa. The sample period of 108 months from January 2007 to December 2015 was used based on the availability of data. The political risk were measured by the country's political risk index; whilst tourism revenue was measured by the total monthly income from the entire tourism industry in South Africa. The autoregressive distributed lag (ARDL) model was used to test the short-run and long-run relationships between political risk and tourism revenue. Results showed that political risks have a long-run effect on real revenue from the tourism industry but there was no empirical evidence supporting the short-run relationship. Findings of this study suggest that it takes time for the political shocks to be manifested in tourism revenue. This study showed that the South African tourism revenue continued to grow, even during the period of increasing political risk and hence a further analysis of how different dimensions of political risk affect different categories of tourism revenue, was recommended.