Abstract
Problem statement: Given the high contribution of tourism industry in the Malaysian economy, Malaysia has a vast view to increase its market share of the international tourist arrivals in the Asia Pacific region. Therefore, this study attempts to investigate the long run and short run demand for tourism from top ten markets (country). Approach: To accomplish this objective the ARDL bound test approach to cointegration was carried out for quarterly time series data from 1998:Q1 to 2007: Q3. A three-stage procedure followed to test the direction of causality. In the first stage the order of integration was tested using the Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) unit root tests. The second stage involved testing for the existence of a long-run equilibrium relationship between arrivals, income, tourism price, tourism substitute price and travel cost. The third stage involved constructing standard Granger-type causality tests augmented with a lagged error-correction term where the series were cointegrated. Results: The result of ADF and PP unit root tests confirmed that all variables were stationary at first difference. In addition the results indicated that a long run relationship and between variables. Conclusion: The results indicated that tourists from these ten countries seem to be highly sensitive to the price and the alternative destinations are complementary to Malaysia. In addition the results showed that the outbreak of Severe Acute Respiratory Syndrome (SARS, 2003) had a negative affects significantly affected Malaysia’s tourism demand.
Highlights
The results show that the significant long-run cointegration relationship between Russian tourism receipts, real exchange rates, world Gross Domestic Product (GDP) and air transport prices
The model constructed is based on the classical economic theory which supposes that total tourist arrivals, as a measure of Malaysian tourism demand, are determined by the lagged tourist arrivals, level of income, tourism price, travel cost, tourist substitute piece and dummy variables
The analysis begins by investigating the unit root test of variables using the Augmented Dickey-Fuller[29]
Summary
Tourism industry affects positively on the economy besides an increase in foreign exchange earning and employment opportunities. The Malaysian government has serious attention to develop tourism industry after decrease in oil and the world economic recession in the middle of the 1980s. The Gulf War in 1991, the Asian financial crisis in 1997 and the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 have negative affects on international tourist arrivals at an annual average rate of -12.5, -13 and -20.4% respectively
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