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

Author

Listed:
  • Peter Fuleky

    (University of Hawaii Department of Economics)

  • Carl S. Bonham

    (University of Hawaii Department of Economics)

  • Qianxue Zhao

    (University of Hawaii Economic Research Organizaion)

Abstract

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 e ects of cross-sectional dependence by applying Pesaran’s (2006) common correlated e ects 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.

Suggested Citation

  • Peter Fuleky & Carl S. Bonham & Qianxue Zhao, 2013. "Estimating Demand Elasticities in Non-Stationary Panels: The Case of Hawaii's Tourism Industry," Working Papers 201314, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:201314
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_13-14R.pdf
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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