Abstract

The objective of this study is to evaluate the implications of terrorism in the global peace and security with reference to Middle East region. In carrying out this study, a time series model and estimate were specified by the seemingly unrelated regressions (SURE) model (Zellner, 1962).  A consumer-choice model developed by Enders, Sandler and Parise (1992) is utilized to study the regional effects of terrorism on competitors’ market shares with appropriate impact on political and socio-economical impact subject to high frequency of terrorist attacks. The theoretical model is tested for three Middle East countries, namely Egypt, Israel, and Turkey, for the period from January 1996 to December 2014, using the seemingly unrelated regression model. Italy is used as a control variable in estimations, acting as a proxy for tourist activities in the rest of the Middle East region and providing an additional destination for tourists to visit. Evidence indicates that the political instability in Israel and Turkey are more sensitive to terrorism incidents than in Egypt. There are also significant regional contagion effects of terrorism. We find that a higher level of terrorist incidents in Egypt is associated with an increase in the relative market share of Israel in the region, while terrorism in Israel benefits Turkey’s market share. We also document evidence that the location (urban versus rural) and the intensity of terrorist incidents play an important role in the decision-making process of tourists for choice of destinations. Policy implications of our findings are also discussed.