Analysis of Japanese and US Tourists Demand to Korea

Abstract

This study uses the cointegration and error correction approach to analyze the long-run and short-run inbound tourism demand in South Korea by two major tourist generating countries, Japan and USA. The estimated income elasticities which are 2.5 for Japanese and 3.0 for US tourists respectively in the long-run models imply that traveling to South Korea is a luxurious tourist good for them. The trade volume variable was found to be significant in all models while the return airfare was only significant in the Japanese equation. The prices/costs of tourism in Korea also playa significant role in determining the number of tourists visiting Korea from the USA, but this is not the case for Japanese tourists. In terms of the significance of substitution prices in the demand models, Malaysia and China tum out to be the most favorite substitute destinations while Singapore and Thailand are found to be complementary destinations.