This paper assesses the effects of the security situation, Israel’s image, and economic variables on the arrival of various types of tourists to Israel, for the period 2000:Q1- 2010:Q4. The estimation was conducted using the Augmented Mean Group (AMG) method developed by Eberhardt and Teal (2010), which is suitable for the nonstationary and cointegrative characteristics of the panel data and takes into account cross-sectional dependence—the dependence between the number of tourists of each type that arrive. We found that the arrival of tourists is markedly affected by the security situation, with a differential effect according to the various types: Tourists arriving for pilgrimages, vacations or touring are affected to a great extent by the level of terrorism, while those coming for business or to visit relatives are affected to a lesser extent. It was also found that tourists who have an attachment to the State of Israel—including Jews and other tourists who have already visited Israel—are affected to a lesser extent by the level of terrorism. The State of Israel’s image also affects the number of tourists coming to Israel: Visitors who come for business purposes are affected by Israel's business image, while those who come for leisure or touring, for pilgrimages, and to some extent even for business are affected by its image in lifestyle areas. European tourists are more affected by Israel’s image in lifestyle areas than North American tourists. The effect of economic variables on tourist arrivals is secondary: An appreciation in the real exchange rate of the shekel reduces only slightly the number of tourists arriving in Israel. The effect of economic variables is greater when the level of terrorism is low.

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