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

  • Peter Fuleky

    ()

    (UHERO, University of Hawaii at Manoa)

  • Carl S. Bonham

    ()

    (UHERO, University of Hawaii at Manoa)

  • Qianxue Zhao

    ()

    (UHERO, University of Hawaii at Manoa)

It is natural to turn to the richness of panel data to improve the precision of estimated tourism demand elasticities. However, the likely presence of common shocks shared across the underlying macroeconomic variables and across regions in the panel has so far been neglected in the tourism literature. We deal with the effects of cross-sectional dependence by applying PesaranÕs (2006) common correlated effects estimator, which is consistent under a wide range of conditions and is relatively simple to implement. We study the extent to which tourist arrivals from the US Mainland to Hawaii are driven by fundamentals such as real personal income and travel costs, and we demonstrate that ignoring cross-sectional dependence leads to spurious results.

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File URL: http://www.uhero.hawaii.edu/assets/WP_2013-2R.pdf
File Function: First version, 2013
Download Restriction: no

Paper provided by University of Hawaii Economic Research Organization, University of Hawaii at Manoa in its series Working Papers with number 2013-2R.

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Length: 32 pages
Date of creation: Feb 2013
Date of revision: Aug 2013
Handle: RePEc:hae:wpaper:2013-2r
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