Geopolitical-Risk and Economic Policy–Uncertainty Impacts on Tourist Flows from Neighboring Countries: A Wavelet Analysis

This paper investigates the nexus of geopolitical risks (GPRs), economic policy uncertainty (EPU), and tourist arrivals in South Korea. Specifically, this research examines whether arrivals from neighboring tourism source countries (i.e., China and Japan) are influenced by geopolitical events and economic volatilities in South Korea. To establish the research purpose, we investigated the relationships among GPRs, EPU, and tourism demand by using monthly data from January 2003 to November 2019. Additionally, innovative techniques (continuous wavelets, wavelet coherency, and wavelet phase difference) were employed, which allow the decomposition of time series considering different time and frequency components. The results demonstrate inconsistent and heterogeneous co-movements between variables that are localized across different time periods and frequencies. In addition, we detected several significant coherencies that prove the important role of GPR and EPU in explaining changes in the numbers of tourists arriving in South Korea from China and Japan. In terms of time domain, negative and positive correlations in tourism demand were detected, meaning that economic and geopolitical shocks may not always lead to negative consequences. From the frequency domain, the causal effects of GPR mostly appear to have short- to mid-run implications, with almost no relationship in the low-frequency band, whereas EPU holds a heterogeneous influence varying short-term to long-term, including higher to lower frequencies. Results show the resilience of the tourism industry against the transient effects of economic and geopolitical shocks. Tourists become adversely affected by external events such as geopolitical risks and economic uncertainties, but the impact is not consistent over time for tourists from countries neighboring Korea. The findings provide a deeper understanding of how crisis events, including political instability and economic fluctuations, can affect inbound tourism in geographically and historically interrelated countries. Therefore, to minimize the negative effect on tourism demand, it is important for practitioners to consider potential external threats when making forecasts.

GEOPOLITICAL RISKS AND THE HIGH-FREQUENCY MOVEMENTS OF THE US TERM STRUCTURE OF INTEREST RATES

We use daily data for the period 25th November 1985 to 10th March 2020 to analyze the impact of newspapers-based measures of geopolitical risks (GPRs) on United States (US) Treasury securities by considering the level, slope and curvature factors derived from the term structure of interest rates of maturities covering 1 to 30 years. No evidence of predictability of the overall GPRs (or for threats and acts) is detected using linear causality tests. However, evidence of structural breaks and nonlinearity is provided by statistical tests performed on the linear model, which indicates that the Granger causality cannot be relied upon, as they are based on a misspecified framework. As a result, we use a data-driven approach, specifically a nonparametric causality-in-quantiles test, which is robust to misspecification due to regime changes and nonlinearity, to reconsider the predictive ability of the overall and decomposed GPRs on the three latent factors. Moreover, the zero lower bound situation, visible in our sample period, is captured by the lower quantiles, as this framework allows us to capture the entire conditional distribution of the three factors. Using this robust model, we find overwhelming evidence of causality from the GPRs, with relatively stronger effects from threats than acts, for the entire conditional distribution of the three factors, with higher impacts on medium- and long-run maturities, i.e., curvature and level factors, suggesting the predictability of the entire US term structure based on information contained in GPRs. Our results have important implications for academics, investors and policymakers.

Heterogeneity of the Impact of Geopolitical Events on Energy Trade: An Empirical Study Based on Regression Discontinuity Design

In the context of intensifying global geopolitical disputes and trade frictions, the relationship between geopolitics and energy trade has attracted extensive attention from scholars. The complexity of geopolitical risks mainly comes from the diversity of geopolitical events, which directly leads to the different responses of energy trade in the face of geopolitical risks. The purpose of this paper is to analyze the heterogeneity of the impact of geopolitical events on energy trade based on the difference of event types. This paper uses Regression Discontinuity Design (RDD) to simulate a quasi-natural experiment. Based on the monthly data and the Geopolitical Risk index (GPR index) of 17 emerging economies from 2000 to 2020, the empirical analysis can be concluded as follows: Wars and conflicts events lead to the increase of energy trade volume; terrorist attacks have no significant impact on energy trade; international tension can cause the decline in energy trade. Additional analysis shows that the impact of geopolitical events on energy trade in emerging economies is concentrated on the demand side, and the demand is severely inelastic.