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Estimating Demand Elasticities in Non-Stationary Panels: The Case of Hawaii's Tourism Industry

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  • Carl S. Bonham

    (University of Hawaii Department of Economics)

  • Peter Fuleky

    ()
    (University of Hawaii Department of Economics)

  • Qianxue Zhao

    (University of Hawaii Economic Research Organizaion)

Abstract

Tourism demand elasticities are central to marketing, forecasting and policy work, but the wide array of occasionally counterintuitive estimates produced by existing empirical studies implies that some of those results may be inaccurate. To improve the precision of estimates, it is natural to turn to the richness of panel data. However, panel estimation using non-stationary data requires careful attention to the likely presence of common shocks shared across the underlying macroeconomic variables and across regions. Several recently developed econometric tools for panel data analysis attempt to deal with such cross-sectional dependence. We apply the estimator of Pesaran (2006) and Kapetinos, Pesaran and Yamagata (2010) to obtain tourism demand elasticities in non-stationary heterogeneous dynamic panels subject to common factors. We study the extent to which tourism arrivals from the US Mainland to Hawaii are driven by fundamentals such as real personal income and the cost of the trip, and we nd that neglecting cross-sectional dependence in the data leads to spurious results.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_13-3.pdf
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201303.

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Length: 19 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:hai:wpaper:201303

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Keywords: Panel Cointegration; Cross-Sectional Dependence; Tourism Demand; Hawaii;

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  1. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, . "Testing for PPP: Should We Use Panel Methods?," Working Papers 186, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
  3. G. Kapetanios & M. Hashem Pesaran & T. Yamagata, 2010. "Panels with nonstationary multifactor error structures," Post-Print peer-00768190, HAL.
  4. Perron, P. & Rodriguez, G., 2000. "Seraching for Additive Outliers in Nonstationary Time Series," Working Papers, University of Ottawa, Department of Economics 0005e, University of Ottawa, Department of Economics.
  5. Bai, Jushan & Kao, Chihwa & Ng, Serena, 2009. "Panel cointegration with global stochastic trends," Journal of Econometrics, Elsevier, Elsevier, vol. 149(1), pages 82-99, April.
  6. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 967-1012, 07.
  7. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  8. Sul, Donggyu, 2009. "Panel unit root tests under cross section dependence with recursive mean adjustment," Economics Letters, Elsevier, vol. 105(1), pages 123-126, October.
  9. Bonham, Carl & Gangnes, Byron & Zhou, Ting, 2009. "Modeling tourism: A fully identified VECM approach," International Journal of Forecasting, Elsevier, Elsevier, vol. 25(3), pages 531-549, July.
  10. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2004. "Some cautions on the use of panel methods for integrated series of macroeconomic data," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 322-340, December.
  11. Witt, Stephen F. & Witt, Christine A., 1995. "Forecasting tourism demand: A review of empirical research," International Journal of Forecasting, Elsevier, Elsevier, vol. 11(3), pages 447-475, September.
  12. Westerlund Joakim & Urbain Jean-Pierre, 2011. "Cross sectional averages or principal components?," Research Memorandum 053, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  13. Crouch, Geoffrey I., 1996. "Demand elasticities in international marketing : A meta-analytical application to tourism," Journal of Business Research, Elsevier, vol. 36(2), pages 117-136, June.
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