A system of equations modeling international tourism demand for Taiwan

Abstract

It is difficult to model tourism demand since tourism involves a diverse set of activities. Although research literatures have reported the international tourism demand of Taiwan in recent years, most of them are based upon non-causal forecasting techniques (i.e. time series models) in which tourism is analyzed without reference to those factors that might affect the behavior of consumer (Tsai et al., 1998). On the other hand, empirical studies on international tourism demand by using econometric models are rare in Taiwan, and this is the objective of this study. The data set of 4 countries including Japan, South Korea, Singapore, and U.S.A. over the period from 1991 to 2002 is used to model the international tourism demand in Taiwan. We find that, if we consider non-economic variables, then the own-price elasticities of U.S.A. and South Korea are inelastic in the short-run. As well as the income elasticities of U.S.A. and South Korea are not sensitive to the change of income. In contrast, price elasticities of Japan and Singapore in the short-run are sensitive to changes in income and higher than the long-run. Moreover, past tourist consumption of U.S.A. (Singapore) partially followed (reversed) their previous consumption behavior. For the long-run elasticity, price inelasticity of Japan is higher but U.S.A. is smaller. This suggests that an increase in consumer price on Japan (U.S.A.) will instantly (slowly) decrease foreign receipts from Taiwan.