The Effect of Natural Disasters on Hotel Demand, Supply and Labour Markets: Evidence from the La Palma Volcano Eruption

Veronica Leoni () and David Boto-García ()
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Veronica Leoni: University of Bologna
David Boto-García: University of Oviedo

Environmental & Resource Economics, 2023, vol. 86, issue 4, No 2, 755-780

Abstract: Abstract Natural disasters are an important deterrent factor for tourism activities from both supply and demand perspectives. This paper studies the short-term effect of a volcano eruption on hotel demand, supply and hospitality labour in La Palma (Spain), an island economy that is highly dependent on the tourism sector. Based on a monthly panel dataset, we employ seemingly unrelated difference-in-differences (SUR-DiD) to identify the distinct responses of these three outcomes both during and post eruption. We are particularly interested in examining the asymmetry in their elasticities to the shock, which serve as indicators of disaster resilience. Potential spillover effects on nearby islands are also examined. We find that the eruption resulted in significant yet asymmetrical drops in international demand, number of hotels opened, and hospitality workers hired. Our findings inform about the resilience of the tourism industry to natural disasters, offering relevant insights about heterogeneous effects depending on exposure to the event.

Keywords: Natural disasters; Tourism-led economy; Resilience; Recovery from disaster (search for similar items in EconPapers)
JEL-codes: R11 R23 Z30 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10640-023-00811-4

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