Modeling Tourism Demand: A Dynamic Linear AIDS Approach

Abstract

The linear almost ideal demand system (LAIDS), in both static and dynamic forms, is examined in the context of international tourism demand. The superiority of the dynamic error correction LAIDS compared to its static counterpart is demonstrated in terms of both the acceptability of theoretical restrictions and forecasting accuracy, using a data set on the expenditure of U.K. tourists in 22 Western European countries. Both long-run and short-run demand elasticities are calculated. The expenditure elasticities show that traveling to most major destinations in Western Europe appears to be a luxury for U.K. tourists in the long run. The demand for travel to these destinations by U.K. tourists is also likely to be more price elastic in the long run than in the short run. The calculated cross-price elasticities suggest that the substitution/complementarity effects vary from destination to destination.

Modelling substitution between domestic and outbound tourism in Australia: A system-of-equations approach

“…Both studies used single-equation demand models, in which both domestic and foreign tourism prices were included, thus allowing for estimation of cross-price elasticities and verification of substitutability. The limitations of single-equation demand models are well noted, such as lacking an explicit basis in consumer demand theory, and being unable to test such theoretical restrictions as symmetry and adding-up that are associated with existing demand theories (Li, Song, & Witt, 2004. Hamal (1997) acknowledged that the most appropriate way to investigate the substitutability is to estimate a complete demand system that is consistent with economic theory.…”

The Effects of Real Exchange Rates and Income on International Tourism Demand for the USA from Some European Union Countries

“…In most of these analyses, the number of tourist arrivals was used as the dependent variable (Lin et al 2011, Song andLi 2008;Downward and Lumsdon 2003;Song and Witt 2000). In some studies (Li et al 2004Seo et al 2009;Halicioglu 2010;Ahmed 2013;Isik 2012;Isik and Radulescu 2017;Isik et al 2017b), tourist expenditures in the tourist destinations were used. In others, particular tourist products such as meals shopping expenditures (Au and were used.…”

Tourism Demand Modelling and Forecasting

“…Specifically, this variable was measured by total tourist arrivals from an origin to a destination, which could be decomposed further into holiday tourist arrivals, business tourist arrivals, tourist arrivals for visiting friends and relatives (VFR) purposes (e.g., Turner and Witt, 2001a, and Kulendran and Wong, 2005, and tourist arrivals by air (Coshall, 2005;Rosselló-Nadal, 2001). Some studies used tourist expenditure in the destination as the demand variable (such as Li et al, 2004Li et al, , 2006aLi et al, and 2006b) and others employed tourist expenditure on particular tourism product categories, such as meal expenditure (Au and Law, 2002), sightseeing expenditure , and shopping . Other tourism demand variables used in the literature include tourism revenues (Akal, 2004), tourism employment and tourism import and export (Smeral, 2004).…”

“…Eleven studies have employed various versions of AIDS for tourism demand modelling and forecasting during the period 2000-2006, and particular attention has been paid to the dynamics of tourism demand systems. For example, De Mello and Fortuna (2005), Durbarry and Sinclair (2003), Li et al (2004), and Mangion et al (2005) all combined ECM with the linear AIDS (LAIDS) model (i.e., EC-LAIDS). Li et al (2006a) further combined the TVP model along with the long-run LAIDS and EC-LAIDS to establish TVP-LR-AIDS and TVP-EC-LAIDS models, respectively.…”

“…In addition to the demand elasticity analysis, forecasting performance of various AIDS models was evaluated in five out of eleven studies. For instance, Li et al (2004) showed EC-LAIDS model's superior forecasting performance over its static counterpart. Li et al (2006a) demonstrated that TVP-LR-AIDS and TVP-EC-LAIDS outperformed their fixed-parameter counterparts in the overall evaluation of demand level forecasts.…”