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Estimating Price Effects in an Almost Ideal Demand Model of Outbound Thai Tourism to East Asia

Author Info

  • Chia-Lin Chang

    (Department of Applied Economics, National Chung Hsing University)

  • Thanchanok Khamkaew

    (Faculty of Economics, Maejo University)

  • Michael McAleer

    (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University)

Abstract

This paper analyzes the responsiveness of Thai outbound tourism to East Asian destinations, namely China, Hong Kong, Japan, Taiwan and Korea, to changes in effective relative price of tourism, total real total tourism expenditure, and one-off events. The nonlinear and linear Almost Ideal Demand (AID) models are estimated using monthly data to identify the price competitiveness and interdependencies of tourism demand for competing destinations in both long run (static) and short run error correction (dynamic) specifications. The homogeneity and symmetry restrictions are imposed on the long run and short run AID models to estimate the elasticities. The income and price elasticities provide useful information for public and private tourism agents at the various destinations to maintain and improve price competitiveness. The empirical results show that price competitiveness is important for tourism demand for Japan, Korea and Hong Kong in the long run, and for Hong Kong and Taiwan in the short run. With regard to long run cross-price elasticities, the substitution effect can be found in the following pairs of destinations: China-Korea, Japan-Hong Kong, Taiwan-Hong Kong, Japan-Korea, and Taiwan-Korea. The complementary effect can be found in the following pairs of destinations: China-Hong Kong, China-Japan, China-Taiwan, Japan-Taiwan, and Korea-Hong Kong. Contrary to the findings obtained from the long run AID specification, Japan-Korea and Taiwan-Korea are complements in the short run. Furthermore, China's share of real total tourism expenditure is inelastic in response to a change in real total tourism expenditure, while Korea's share of real total tourism expenditure is most sensitive to changes in expenditure in the long run. The greatest impact on the share of real total tourism expenditure in the short run is tourism demand for Taiwan.

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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 725.

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Length: 43pages
Date of creation: Sep 2010
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Handle: RePEc:kyo:wpaper:725
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Keywords: Almost Ideal Demand (AID) model; tourism demand; price competitiveness; substitutes; complements; budget shares; error correction;

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Find related papers by JEL classification:
  • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
  • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
  • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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