Applied Economics Letters, 2010, 17, 761766

Events that marked tourism

in Portugal
Jorge L. M. Andraz* and Paulo M. M. Rodrigues
Faculty of Economics, CASEE Centre for Advanced Studies in Economics
and Econometrics, University of Algarve, Faro, Portugal

This article uses outlier detection procedures to investigate events that may
have had a pronounced effect on tourism in Portugal. Interestingly, we
confirm the evidence that the effects on tourism are lagged in time. As a
result, expected business volumes are only attained later than originally
anticipated and arising difficulties affect tourism leading to possible
destination rerouting.

I. Introduction
Tourism is one of the worlds largest and fastest growing
industries, playing a key role in the economic growth of
many countries, lending itself to other economic sectors
through direct and indirect multiplier effects. Portugal
and, in particular, the regions of Algarve, Madeira and
Lisbon (although at different scales) heavily rely on
tourism as an important means of (economic) resource,
catering largely to the European market.
Much concern and interest has been devoted to tourism research not only because of the economic importance of this industry but also because of its strong
sensitivity to extraordinary events (e.g. Tyrrell and
Johnston, 2001; Lee and Taylor, 2005; Selvanathan,
2007; Webber, 2008).
Through the use of outlier detection procedures
(e.g. Charles and Darne
, 2006 for an application to
the stock market), we investigate and identify events
that have had a strong impact on tourism flows to
Portugal. This type of analysis allows us to associate
large (positive or negative) shocks to events, and determine the type of outlier effects that occur as a result.

II. Outlier Detection

Outliers represent extraordinary, infrequent occurrences or shocks that cause significant impact on a
time series. Following Fox (1972), four types of

outliers are typically considered: the additive outlier

(AO), the innovative outlier (IO), the level shift (LS)
and the temporary change (TC).
These outliers affect observations in different ways.
An AO represents an isolated spike, i.e. causes an
immediate and one-shot effect on the observed series;
an LS produces an abrupt and permanent step change
in the series; and a TC produces and initial effect that
gradually diminishes over time. The effect of the IO is
more intricate than that induced by other outliers and
generates relatively persistent effects on the level of the
series.
In this article, the automatic model identification, outlier detection and correction procedure of
the TRAMO/SEATS software developed by Gomez
and Maravall (1997) are used. This package uses a
procedure for detection and correction of outliers,
which is based on the work of Tsay (1988) and Chen
and Liu (1993).

III. Empirical Analysis of Tourism Series

In the empirical analysis, we consider the number
of nights, from January 1987 to July 2006, tourists
stayed in hotel accommodation and other tourist facilities in the Portuguese regions of Algarve, Lisbon and
Madeira. Currently, the main source markets are the
UK, Germany, the Netherlands, Ireland, Spain and
Portugal.

*Corresponding author. E-mail: jandraz@ualg.pt

Applied Economics Letters ISSN 13504851 print/ISSN 14664291 online  2010 Taylor & Francis
http://www.informaworld.com
DOI: 10.1080/13504850802314445

761

J. L. M. Andraz and P. M. M. Rodrigues

762
Tables 13 present the type, date and t-statistics of
outliers detected for each series and events, which
seem to be strongly correlated (although in few exceptional cases, no clear connection can be established
between detected outliers and occurrence of events
resulting from lagged effects).
The presence of abrupt movements in tourism series
is perhaps the combined result of several factors, some
of which we attempt to identify. For instance, tourism

has been seriously affected by such incidents as the

foot and mouth outbreak in Europe and the IsraeliPalestine conflict, as well as by other occurrences.
Furthermore, the tragic events of 11 September 2001
and the ensuing war impacted significantly on US tourism, its economy and world trade, resulting in a sharp
downward spiral in all important economic sectors
worldwide. According to the Composite Index of
Industrial Production reported by the Organization

Table 1. Outliers detected for Algarve

Origin country

Outlier type

Date

t-stat.

TC
TC
TC
AO
AO
AO

1987:05
1987:11
1994:01
1997:11
2001:12
1992:03

4.53
-4.02
-3.31
4.16
4.34
-4.02

LS
AO
TC
LS
AO
AO
TC
AO

LS
LS
AO
TC
AO

1993:04 -3.25
1999:12 -3.64
2002:12 -3.69
2003:08 -3.68
1987:01 -11.69
1988:04
4.30
1992:12
4.87
1995:11 12.05

1990:04
4.61
1991:03
4.71
1995:03 -4.92
1996:01 -6.47
1997:01 -4.05

UK

Germany

The Netherlands

Ireland

Portugal
Spain

Events
Great storm in 1987:10/Bombing (IRA) four attacks in 1987
Massacre Northern Ireland (Out 93)
Hong Kong reverts to China in 1997:07 /East Asian Crisis
New York terrorist attacks in 2001:09
Socialist Federal Republic of Yugoslavia begins to break down
in 1992:01
Economic slowdown
29 terrorist attacks in 1991 and 28 in 1992
Expo Seville; Winter and Summer Olympic Games and
paralympic games
1993 is the fourth year of economic slowdown
BSE outbreak 1999:10
GDP growth rate close to zero in 1992
SARS 2003:022003:06/GDP growth rate close to zero in 1993
GDP growth rate close to zero in 1986/new government in the end 1986
High annual GDP growth rate
High annual GDP growth rate
Operation storm ends in 1995:08/high annual GDP growth rate

GDP growth rate well above the European Union average

Iraqi war ends/GDP growth rate well above the European Union average
Terrorism attack in Madrid (December 1995)
Bombing in Paris subway (December 1996)

Notes: GDP, Gross Domestic Product; IRA, Irish Republican Army; SARS, Severe Acute Respiratory Syndrome.
Table 2. Outliers detected for Lisbon
Origin country
UK
Germany
The Netherlands
Ireland
Portugal

Spain

Outlier type

Date

t-stat.

Events

AO
TC
TC
AO
AO
AO
AO
AO
LS
LS
LS
LS
TC
AO
TC

2004:06
2005:12
1997:01
2005:12
1988:02
2005:12
1995:11
2000:10
1998:06
1998:10
2001:01
2001:07
2001:10
1991:03
1998:06

11.05
7.72
-3.27
5.96
4.06
15.19
13.29
3.64
5.73
-8.32
-5.91
-3.64
4.10
3.65
8.75

Madrid terrorist attacks, 2004:03/Euro 04, 2004:06

London terrorist attacks, 2005:07/Bali terrorist attacks, 2005:10
Low GDP growth rates
London terrorist attacks, 2005:07
London terrorist attacks, 2005:07
High GDP growth rates
Expo 98, 1998:051998:09
Expo 98, 1998:051998:09
New York terrorist attacks, 2001:09
Expo 98, 1998:051998:09

Notes: GDP, Gross Domestic Product; IRA, Irish Republican Army; SARS, Severe Acute Respiratory Syndrome.

Events that marked tourism in Portugal

763

Table 3. Outliers detected for Madeira

Origin country

Outlier type

Date

t-stat.

UK

LS

1992:11

-7.08

Germany

TC

1992:11

-3.98

The Netherlands
Ireland

AO
LS
AO
LS
TC

AO
AO

1987:10
1987:02
1987:10
1998:05
2001:08

1993:03
1998:01

-3.94
14.19
5.35
-4.09
3.50

-3.66
3.69

Portugal
Spain

for Economic Cooperation and Development (OECD),

global travel and tourism were already facing deceleration in demand due to the weak world economic trends
already in course, prior to the September 11 attacks.
Between September and December 2001, the World
Tourism Organization estimated that international
tourism had decreased by 11% when compared with
the same period in the previous year, particularly the
Middle East, America, Southern Asia, Pacific-East
Asia and Europe, although to a lesser extent.
Overall, our analysis identifies three main causes that
seem to have had an extraordinary impact on tourism in
Portugal, namely the economic cycle of the source country, terrorism incidents and world events. In the next
three subsections, we analyse these factors in detail.
Economic Cycles
Over the last 20 years, the euro area economy has gone
through periods of economic expansion and contraction, as shown in Fig. 1, which may be associated
with the occurrence of positive and negative outliers,
respectively. Based on the evolution of global Gross
Domestic Product annual growth rates, a worldwide
economic expansion over the 1980s and an economic
contraction in the early 1990s can be observed. This
economic behaviour was followed in general by all
countries, although at different scales, with Ireland
consistently achieving the highest average rate of
growth of 4.8% between 1990 and 1995 and 9.5%
between 1995 and 2000. Potential signs of this economic prosperity are evidenced by the positive outliers
that were detected in the tourism data for this country
the AOs in 1988:04, 1992:12 and 1995:11 for
Algarve, the AOs in 1995:11 and 2000:10 for Lisbon
and the TC in 2001:08 for Madeira. Over this period,

Events
Yugoslavia/Egypt
Economic crisis in 1990, 1991 and 1992
Sterling pound withdrawn from ERM
Yugoslavia/Egypt
Economic slowdown
29 terrorist attacks in 1991 and 28 in 1992
Expo Seville; Winter and Summer Olympic Games and
Paralympic Games
GDP growth slowdown
Expo 98/ East Asian Crisis 1997:07 / World Cup in France?
High growth rates

Economic recession in 1993

East Asian Crisis 1997:07

positive outliers were also detected in tourism from

Spain and the UK. Between 1985 and 1991, the annual
growth rate in Spain averaged 5% and tourism in
Portugal, in particular Algarve and Lisbon, registered
positive outliers in 1990 and 1991.
Also between 1970 and 2001, the UK economy
expanded by an average of 3.1% per year, well above
the European Union average, and once again positive
outliers were observed in the British tourism series
over this period. After a period of faster growth,
GDP decelerated to 1.8% in 2005. However, despite
this, the UK economy remains one of the strongest in
Europe with low levels of inflation, interest rates and
unemployment. The positive AO and the TC for
Lisbon found in 2004:06 and 2005:12, respectively,
are perhaps the results of high confidence levels on
the performance of the British economy.
The economic deceleration in the early 1990s was
particularly felt in the Spanish data, which show an
AO in 1993:03 for Madeira and AOs in 1995:03 and
1997:01 as well as a TC in 1996:01 for Algarve.
Moreover, the annual average growth rate of the
German economy was limited to 1.5% in the period
1994 to 2005, the lowest value among the sampled
countries, significantly lower than the European Union
average of 2.2%. This economic environment, among
other causes, has not favoured the tourism industry in
Portugal and may have contributed to explain much of
the negative outliers detected in the data, namely the AO
in 1992:03 for Algarve and the TCs detected in 1997:01
and 1992:11 for Lisbon and Madeira, respectively.
Terrorism
A further cause affecting tourism, particularly over
the last 17 years, is the increase in terrorist activities

J. L. M. Andraz and P. M. M. Rodrigues

764

10,5

7,5

4,5

1,5

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
1,5

EU-12

Spain

Ireland

United Kingdom

Germany

Netherlands

Fig. 1. Annual percentage change of GDP at 2000 market prices

Source: Statistical Annex of European Economy, Spring 2006.

directly targeting tourists and the consequent negative

psychological effects.
In addition to the impact on the tourism industry
of a particular country, interdependencies between
tourism industries and terrorist-related incidents of
different countries are possible. For instance, the
deterrent effect of terrorism on tourists towards a
particular country may benefit tourism industries of
alternative destinations. An interesting result
observed by Enders and Sandler (1991) is that causality is unidirectional, i.e. terrorism affects the inflow
of tourists but not the reverse. This can be observed in
Tables 13. If we consider the 11 September 2001
terrorist attacks in New York and Washington, the
11 March 2004 train bombings in Madrid and the
7 July 2005 bombing in London, we observe that the
first resulted in an increase of British tourists to
Algarve (considering the positive AO observed in
2001:12) and of Portuguese tourists to Lisbon (considering the TC observed in 2001:10). The latter tends
to suggest a precautionary reaction by Portuguese
tourists in favouring domestic travel over outbound
travel, whereas the increase in the number of British
tourists to Algarve suggests a reflection on the
growing attitude towards opting for alternative

destinations closer to home. Hence, in both cases, the

impact led to substitution effects.
The terrorist attacks in Madrid and London seemed
also to have resulted in a marked increase in tourism to
Portugal, particularly Lisbon. The terrorist attacks in
Madrid may be associated with the observed positive
AOs in 2004:06 in the UK time series for Lisbon,
whereas the London attacks have visible impact on
tourism from the UK, Germany and the Netherlands,
through the positive AOs occurring in 2005:12. Hence,
Algarve and Lisbon may have served as substitute destinations of the regions affected where attacks took place.
A note of caution is necessary regarding the temporal perception of the impact of terrorism on tourism, since its pattern depends on the type of attacks on
a particular country, on the market structure and on
the type of time series used by researchers. Time series
on the number of actual visits are likely to respond
more quickly to terrorist incidents than time series on
tourism revenues due to long-term contracts between
tourist destinations and tour operators. Surprisingly
though, different time spans are estimated from time
of impact to time of reaction, that is, the time tourism
takes to react to a terrorist incident after it has elapsed.
For instance, Enders and Sandler (1991) and Fleischer

Events that marked tourism in Portugal

and Buccola (2002) find relatively immediate effects of
terrorism on tourism, i.e. after 23 months, for Spain
and Israel, respectively, whereas Enders et al. (1992)
find tourism to be unaffected by a terrorist incident
until a full 1821 months have passed, as with the case
of continental Europe and Austria, respectively. In our
analysis, we observe from Tables 13 that tourism
from the source markets considered did not experience
delayed reaction to terrorism-related events. For
instance, British tourism reacted almost instantly to
the Irish Republican Army bombings in 1987, the massacre in Northern Ireland in 1993 and the London
bombings in 2005. German tourists also reacted without significant delay to the terrorism attacks that swept
the country in 1991 and 1992. Spanish travellers reacted
immediately to the terrorism attack in Madrid in 1995
and the Paris bombing in 1996.
In summary, terrorism systematically influences
tourists destination choice and can therefore induce
a substantial negative effect on the host country.
Moreover, the effect is often lasting and also impacts
on the demand for tourism in neighbouring
countries.

765
IV. Conclusions
It is generally accepted that demand for travel, whether
domestic or outbound, is driven by economic factors
such as the income of travellers and the cost of travel,
as well as traveller confidence levels in terms of acceptable travel risk associated with tourism. Nowadays,
individuals understand the home environment as the
safest place to be, even if logic suggests otherwise.
The international events observed in this article are
examples that illustrate how world tourism markets
and different destinations can be affected by external
disruption. Overall, an interesting aspect of the analysis
of this article is its contribution towards the stylized fact
that international tourism growth is difficult to contain
since its nature is large and diverse enough to continue
growing even in the face of major incidents. However, it
is important to bear in mind that while growth recovers,
there is a lagged effect in reaction to these events, and
the expected business volumes are only attained later
than originally expected. Another interesting conclusion that can be drawn from our analysis is the fact that
negative or positive events in one particular destination
lead to demand shifts to another destination.

World events
The large number of visitors involved in events, such
as the Olympic Games, and international and universal expositions, are representatives of the importance
and impact that these events may have on tourism. In
many cases, visitors choose specific destinations over
others because of the nature of the events; hence, these
act as strong attractors and generate a temporary
substitution effect in relation to other destinations
over the length of their duration.
From Tables 13, we observe that marked effects
are observed for Lisbon (city hosting Expo 98) and
Madeira. Tourism to Lisbon showed a positive LS in
the number of Portuguese visitors in June 1998, which
can be associated with the start of the Exposition at
the end of May, and a negative LS in October 1998,
when the event ended. Expo 98 may also have
accounted for the positive TC observed in 1998:06
for the Spanish tourists visiting Lisbon. We observe
that Expo 98 may also have been responsible for the
negative LS observed in 1998:05 in terms of inbound
tourists to Madeira from Ireland.
Other events that may have impacted on tourism to
Algarve, Lisbon and Madeira include the 1992
Summer Olympic Games in Barcelona, the 1992
Winter Olympic Games and the Winter Paralympics
in France, the 2002 World Football Championship
and the 2004 European Football Championship.
However, no direct relationship to these events could
be significantly established in our analysis.

Acknowledgement
Financial support from the Portudation Science
Foundatoin (grant ref. PTDC/ECO/64595/2006) is
gratefully acknowledged.

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