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

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  • Veronica Leoni

    (University of Bologna
    University of the Balearic Islands)

  • David Boto-García

    (University of Oviedo)

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.

Suggested Citation

  • Veronica Leoni & David Boto-García, 2023. "The Effect of Natural Disasters on Hotel Demand, Supply and Labour Markets: Evidence from the La Palma Volcano Eruption," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(4), pages 755-780, December.
    • Handle: RePEc:kap:enreec:v:86:y:2023:i:4:d:10.1007_s10640-023-00811-4
    DOI: 10.1007/s10640-023-00811-4
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    More about this item

    Keywords

    Natural disasters; Tourism-led economy; Resilience; Recovery from disaster;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • Z30 - Other Special Topics - - Tourism Economics - - - General

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