Patterns of political instability and inbound tourism to South Korea

Abstract

South Korea’s political instability continues to be provoked by North Korea’s military threats. In the decade from 2004 to 2013, 14 incidents of military tension between South (ROK) and North Korea (DPRK) were recorded. The risks were due to nuclear and missile tests, the death of Kim Jong-il, and two brushfire wars. This research investigated the relationship between the political risks and the trends in inbound tourists to South Korea. In particular, incremental historical volatility demand trends are considered in the context of political events using a stochastic method. The results indicate a significant causal relationship between the types of political risk and the different patterns of volatility seen. Since 2003, the brushfire wars included the artillery attack on Yeonpyeong Island and the sinking of the South Korean Navy’s Corvette Warship. These events had the biggest political impact on the volatility of the inbound tourist market, and all risks had a direct effect on the volatile patterns, whereas the iteration of the risk has an indirect effect as a covariant. The interaction between different types of risk and the iteration was not significant in the fixed model, however if the model was weighted the iteration variable according to the Weighted LSR model improved the explained variance by up to 39.2%.

Keywords:

• Repeated political risks (RPRs)
• incremental historical volatility (IHV)
• weighted LSE
• inbound tourism
• brushfire wars
• missile tests
• nuclear tests