Threshold effects during the COVID-19 pandemic: Evidence from international tourist destinations

POLEMIS, MICHAEL and Stengos, Thanasis (2020): Threshold effects during the COVID-19 pandemic: Evidence from international tourist destinations.

Abstract

The purpose of this study is to investigate the causal effects of governments’ social distancing measures to curb the spread of the ongoing SARS-COV-2 outbreak on the hotel industry of major tourist destinations (France, Greece, Italy, Spain, Portugal, and Turkey). The empirical analysis employs a static threshold model developed in Hansen (1999; 2020) using a daily dataset over the six months from the first confirmed European COVID-19 case (25.01.2020). The results indicate that the investigated relationship is non-monotonic (“U-shaped”) depending on the intensity of the lockdown measures proxied by the Coronavirus Government Response Tracker Index (CGR). The empirical findings corroborate that the effect of lockdown measures on the hotel industry can be positive and statistically significant if and only if sample tourist destinations surpass a certain threshold of lockdown effectiveness (high regime). However, if sample countries adopt social distancing measures below a given threshold level, the effect is negative though significant (low regime). The threshold analysis suggests that COVID-19 increases hotel room revenues even at 12,7% and subsequently the level of hotel performance, only for already “lock downed stringent” countries, supporting the effectiveness of social distancing measures. Finally, the “U-shaped” (convex) curvature does not drastically change when alternative indicators of hotel performance and non-parametric techniques are employed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Hotel industry; COVID-19; Coronavirus Government Response Tracker Index; Social distancing; Threshold model
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C24 - Truncated and Censored Models ; Switching Regression Models ; Threshold Regression Models

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