An econometric study of tourism demand: the AIDS model of US and European tourism in Mediterranean countries

Abstract

The almost ideal demand system (AIDS) model was used to estimate tourism expenditure allocation by US and West European countries among a range of Mediterranean destinations. The approach has the advantage of an explicit basis in consumer expenditure theory and, by modelling the changes in the budget shares of expenditure among destinations, provides new information relative to that provided by the traditional single equation approach. The estimated model was econometrically satisfactory, although symmetry and homogeneity were rejected, in line with the findings of past studies of consumer demand. The expenditure elasticities demonstrated considerable differences in tourism demand preferences between origin countries, and between traditional and newly developing destinations. The own-and cross-price elasticities indicated the importance of effective prices in determining the allocation of expenditure among destinations.