The effect of natural disasters on tourism demand, supply and labour markets: Evidence from La Palma volcano eruption

This paper studies the short-term impact of a volcano eruption on tourism 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 at the touristic zone level, we use SeeminglyUnrelated Difference-in-Differences (SUR-DiD) to identify the distinct responses of these three outcomes during and post eruption. Potential spillover effects on nearby islands are also examined. We find that, in La Palma Island, the volcano produced significant but asymmetrical drops in international demand, number of hotels and hospitality workers both during and after the eruption.