Regional Political Risks and Sustainable Tourism Development Tendencies: A Case Study

Tourism is a powerful economic engine, generating jobs, boosting infrastructure development, and driving foreign exchange earnings. Overall, the economic impact of tourism is largely positive, but careful planning and management are crucial to maximize its benefits and minimize its negative consequences [1]. Tourism industry thrives on stability. Political and social unrest can quickly disrupt travel plans, causing significant economic hardship for destinations that rely heavily on tourism. Recognizing this vulnerability, countries with aspirations for a flourishing tourism sector prioritize maintaining peace and economic security. However, developing nations like Georgia face a unique challenge. Despite its strategically advantageous location, fostering both tourism growth and regional economic well-being requires navigating a complex path towards socio-economic stability. To overcome these hurdles, Georgia is pioneering an adaptive approach that aims to cultivate a tourism industry that thrives alongside a strong regional economy. Tourism flourishes as a wealth-generating industry for many nations, particularly when governments establish a stable political environment. This stability fosters the development of leisure destinations – cities and attractions that entice both domestic and international visitors [2]. The very essence of tourism – leisure, and exploration – is fundamentally at odds with an era of volatility and instability. Tourism, a highly vulnerable industry, thrives on political stability, peace, and above all, safety. Tourists and tourism markets are prone to panic, and events like civil unrest or terrorism can cause travelers to scrap travel plans in a heartbeat. The immediate impact and long-term aftermath of such occurrences can be catastrophic, not just for the destination country but for the entire region [3].

We have a wealth of historical examples to evaluate the impact of political instability on tourism development, including the Arab Spring uprisings and the ongoing conflicts in Gaza and the broader Middle East. This paper contributes to analyzing the relationship between political instability caused by the short Russian intervention and its impact on tourism development in Georgia.

Many countries, including Georgia, have come to rely heavily on tourism as a source of economic prosperity and foreign exchange. As a result, tourism plays a vital role on the global stage, and countries strive to attract visitors to reap its benefits [4]. However, the tourism sector is susceptible to external factors, particularly political instability and concerns about safety and security [5]. Recent events in Ukraine and Israel highlight this vulnerability, where ongoing political unrest has led to travel warnings and a significant decline in tourist arrivals. The concept of democratic peace suggests democracies promote stability. However, maintaining peace becomes complex when safety is threatened by regional conflicts or expansionist policies, even for democracies [6]. The concept of democratic peace suggests that democracies tend to promote stability, ultimately leading to a safer environment. Therefore, it's crucial for tourist destinations to take proactive measures to ensure safety and security. By prioritizing safety and security, destinations can create a thriving tourist industry that benefits both visitors and the local economy [7]. Since 2003, Georgia has actively supported tourism development by way of - Investment in Infrastructure. The Georgian Tourism Development Fund focuses on infrastructural projects in regions with high tourism potential. This could involve improvements to roads, transportation, and communication networks, making it easier and safer for tourists to navigate the country. Financial Support for Tourism Services: Programs like the Co-Financing Mechanism by Enterprise Georgia provide financial aid to develop tourism services. This could potentially improve the quality and safety standards of hotels, transportation companies, and other tourist facilities. Strategic Marketing: Explore Georgia, the state's tourism division, and promote Georgia as a tourist destination. By emphasizing safety and security aspects in their marketing efforts, they can attract tourists who prioritize these factors [8, 9].

On August 8, 2008, Russian forces began the invasion of Georgia, marking the start of Europe’s first twenty-first-century war. The conflict itself was over within a matter of days, but the repercussions of the Russo-Georgian War continued to reverberate fifteen years on, shaping the wider geopolitical environment [10].

Georgia is geographically complex. It sits at the crossroads of Eastern Europe and Western Asia, with the Greater Caucasus mountains forming a partial boundary. Georgia is considered a developing country according to the World Bank. Country has a very high Human Development Index, but its economy is still growing [11, 12].

From a statistical viewpoint, Georgia's tourism industry in 2019 defied expectations, experiencing a period of further remarkable growth. The number of non-resident trips surged by an impressive 678,420, shattering the nine million visitor mark for the first time. Domestic and international tourism are important factors in the Georgian economy [13].

Tourism is a significant revenue stream for the Georgian economy, generating a significant portion of its foreign currency earnings. International visitors' spending directly contributes to Georgia's balance of payments, with a staggering 71% of service export revenue stemming from tourism [11, 14].

Georgia's tourism boom translates into significant economic benefits. International tourism revenue soared to a staggering 3.3 billion USD in 2019, showcasing its growing importance. Tourism's significant contribution was undeniable, accounting for a substantial 8.1% of Georgia's total GDP. This impressive figure reflected a 511 million GEL increase in value-added from tourism-related activities. The hospitality sector was well-equipped, with 2,575 registered accommodation units offering 94,438 beds in 2019 [13].

Tourist behavior reveals distinct seasonal patterns. Occupancy rates peak in summer months (August: 77.1%, September: 74.5%) and shoulder seasons (July & October: 66.8%), while dropping in winter (January: 34.6%, February: 36.4%, December: 38.5%) [12, 13].

Popular destinations: Tbilisi reigns supreme as the most popular city for tourists (59.7% occupancy rate), followed closely by Batumi (58.9%). Other regions of Georgia also experience a notable tourist presence (46.7% occupancy rate) [13].

Georgia has been successful in international relations, as well. In 2019 several memoranda and agreements were signed with a number of countries, including Portugal, Argentina, and the Republic of Maldives.

Table 4. Roots of characteristic polynomial

Roots of Characteristic Polynomial
Endogenous variables: L_REV L_GRE
Exogenous variables: C L_GPR
Lag specification: 1 5
Date: 10/07/22 Time: 21:35
Root	Modulus
0.930632	0.930632
0.388345 - 0.601509i	0.715979
0.388345 + 0.601509i	0.715979
0.633551 - 0.330562i	0.714604
0.633551 + 0.330562i	0.714604
-0.364188 - 0.557640i	0.666029
-0.364188 + 0.557640i	0.666029
-0.051834 - 0.610166i	0.612363
-0.051834 + 0.610166i	0.612363
-0.509732	0.509732
No root lies outside the unit circle.

Source: Vector Autoregressive models performed by author

Table 5. VAR Residual Serial Correlation LM Test

Null Hypothesis: no serial correlation at lag order h
Date: 10/07/22 Time: 21:35
Sample: 2006M01 2022M06
Included observations: 193
Lags	LM-Stat	Prob
1	2.961007	0.5644
2	3.303434	0.5084
3	2.571090	0.6320
4	6.755420	0.1494
5	9.403843	0.0518
6	15.43892	0.0039
Probs from chi-square with 4 df.

Source: Vector Autoregressive models performed by author

In our model, we analyze the relationships between multiple time series variables. A crucial assumption for VAR models is that the errors (residuals) are not serially correlated. This means the errors at any given period are not dependent on the errors at previous periods (see Table 5).

VAR Model - Substituted Coefficients:

L_REV = 0.638354310455*L_REV(-1) - 0.222242402434*L_REV(-2) + 0.0225814561865*L_REV(-3) - 0.0230707596134*L_REV(-4) + 0.0132744660411*L_REV(-5) + 0.167641117497*L_GRE(-1) - 0.775996941178*L_GRE(-2) + 1.47722792278*L_GRE(-3) - 1.68515952577*L_GRE(-4) + 1.1605257563*L_GRE(-5) + 3.78823957643 + 0.398938381063*L_GPR

L_GRE = 0.0170431098973*L_REV(-1) - 0.0126172772917*L_REV(-2) + 0.0140144130223*L_REV(-3) + 0.00211715387649*L_REV(-4) + 0.0190270759934*L_REV(-5) + 0.99429507057*L_GRE(-1) - 0.38255300261*L_GRE(-2) + 0.342384230103*L_GRE(-3) - 0.190892903852*L_GRE(-4) + 0.107345144613*L_GRE(-5) + 0.675257171467 - 0.125777404604*L_GPR

VAR model highlights the strong economic influences on Georgia's tourism revenue. However, external factors like geopolitical tensions can also significantly impact tourism. For instance, Russian intervention in Georgia in 2008 would likely contribute to the decline in tourism flows, revenue, and therefore other important economic indicators. Geopolitical risk can significantly impact the stability of a country in multiple ways, affecting not just the political landscape but also the social and economic well-being. Through the statistical data observed by us using the VAR analysis, we have quite staggering results (see Figure 2).

• The impulse function of Geopolitical risk, increasing, it is giving volatility for the first 6 months but after a year this incertitude disappears in the Georgian tourism sector.
• Following the results of our model, in the case of country Georgia, any geopolitical risks are to be absorbed after a year.
• Geopolitical risk positively correlated with the Georgian tourism revenue (quite strange), which means - Geopolitical Risk increased and revenues have increased as well.

The 2008 Russian intervention in Georgia presents a fascinating case study. While such events often have negative consequences for tourism, Georgia's tourism industry appears to have exhibited a positive trend in the aftermath. Understanding the specific dynamics at play in this instance can provide valuable insights for destinations facing similar challenges. Georgia's tourism industry offers a compelling case study. Despite the 2008 Russian intervention, which is typically associated with a decline in tourism, Georgia's tourism sector appears to have flourished. This unique situation calls for a closer examination of the factors that may have contributed to this positive development (see Table 6) [11, 12, 18].

fig4.png

fig5.png

Figure 2. Response

Source: Vector Autoregressive models performed by author

A positive correlation between political instability and tourism flows in Georgia, as suggested by a VAR analysis, may seem counterintuitive. Typically, political instability tends to deter tourists. However, several factors could contribute to this unexpected relationship:

1. Media Coverage and Sensationalism:

• Increased Media Attention: Political instability often attracts significant media attention, which can inadvertently put Georgia on the global tourism map.
• Sensationalized Reporting: News outlets may sensationalize events, creating a sense of excitement and adventure that draws thrill-seeking tourists.

2. Lower Prices and Discounts:

• Economic Downturns: Political instability can lead to economic downturns,therefore lower prices for accommodation, transportation, and other tourism services.
• Promotional Offers: To attract tourists during uncertain times, businesses in Georgia were offering significant discounts and promotions.

3. Unique Experiences and Adrenaline Rush:

• Witnessing History in the Making: Some tourists were drawn to Georgia for experiencing political upheaval, seeking to witness firsthand historical events and social change.
• Adventure Tourism: Political instability can create opportunities for adventure tourism, such as visiting conflict zones or participating in protests. It was boosting tourist to visit conflict zones and further more such as create a hollywood filmmaking -August 8, 2012

4. Government Initiatives to Boost Tourism:

• Diversification Strategies: In response to political instability, the government of Georgia prioritized tourism as a source of revenue and employment.
• Targeted Marketing Campaigns: Government agencies launched marketing campaigns to highlight the country's cultural heritage, natural beauty, and unique experiences, emphasizing safety and security.

5. Resilience of the Tourism Industry:

• Adaptability: The tourism industry in Georgia was highly adaptable, quickly adjusting to changing circumstances and implementing safety measures.
• Strong Domestic Tourism: A robust domestic tourism market that helped offset declines in international tourism during periods of instability.

It's important to note that this positive correlation might be a temporary phenomenon. As political stability returns, it's likely that tourism flows will normalize or even decline if the factors driving the initial increase are no longer present.

To further explore this relationship, it's crucial to consider other factors such as:

• Specific events and their impact on tourism.
• Government policies and their effectiveness in mitigating negative impacts.
• The role of social media and online travel platforms in shaping perceptions of Georgia.

By conducting a more in-depth analysis, it may be possible to identify the primary drivers of this correlation and to predict future trends in tourism flows [6, 9, 19].