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

  • 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)

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
File Function: First version, 2013
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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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  1. Kapetanios, G. & Pesaran, M. Hashem & Yamagata, T., 2011. "Panels with non-stationary multifactor error structures," Journal of Econometrics, Elsevier, vol. 160(2), pages 326-348, February.
  2. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, . "Some Cautions on the Use of Panel Methods for Integrated Series of Macro-Economic Data," Working Papers 170, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2005. "Testing for PPP: Should we use panel methods?," Empirical Economics, Springer, vol. 30(1), pages 77-91, January.
  4. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  5. Peter Pedroni, 2001. "Purchasing Power Parity Tests in Cointegrated Panels," Department of Economics Working Papers 2001-01, Department of Economics, Williams College.
  6. 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.
  7. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  8. Bonham, Carl & Gangnes, Byron & Zhou, Ting, 2009. "Modeling tourism: A fully identified VECM approach," International Journal of Forecasting, Elsevier, vol. 25(3), pages 531-549, July.
  9. 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).
  10. Pierre Perron & Gabriel RodrÌguez, 2003. "Searching For Additive Outliers In Nonstationary Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(2), pages 193-220, 03.
  11. Jushan Bai & Chihwa Kao & Serena Ng, 2007. "Panel Cointegration with Global Stochastic Trends," Center for Policy Research Working Papers 90, Center for Policy Research, Maxwell School, Syracuse University.
  12. Witt, Stephen F. & Witt, Christine A., 1995. "Forecasting tourism demand: A review of empirical research," International Journal of Forecasting, Elsevier, vol. 11(3), pages 447-475, September.
  13. 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.
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