Political relations and tourism: evidence from China

This paper provides empirical evidence on how political relations affect the tourism market. We use monthly data to identify the pattern of short-lived effects of political shocks in the tourism market. A political relation shock has an immediate effect on Chinese outbound tourism, and then the effect is amplified in the next month before it vanishes in the following months. Particularly, the negative political shocks, namely political disputes, are responsible for most of the effects on outbound tourism. Moreover, we investigate the specific mechanism in China through which political relation shocks affect outbound tourism. We find that government interference by issuing travel warnings plays a crucial role in the mechanism. Further analysis on tourists' demand shows that deterioration in political relations itself has no direct effects on tourists' demand. However, when accompanied by the issuance of travel warnings, the negative political shocks significantly reduce tourists' willingness to travel to the opposing countries.