Asian Financial Crisis, Avian Flu and Terrorist Threats: Are Shocks to Malaysian Tourist Arrivals Permanent or Transitory?

Abstract

International visitor arrivals from Malaysia's 10 major source markets are examined using Lagrange Multiplier (LM) unit root tests with one and two structural breaks to ascertain whether shocks to the time path of tourist arrivals are permanent or transitory. The LM unit root test with one break is able to reject the unit root null for between 60% of source markets where the break is specified as in the intercept and 90% of source markets where the break is specified as in the intercept and slope. The LM unit root test with two breaks is able to reject the unit root null for all source markets, irrespective of how the break is specified. This result suggests that the effects of shocks on the growth path of tourist arrivals to Malaysia from its major markets are only transitory and that Malaysia's tourist sector is sustainable in the long run. Although the effects of shocks are not permanent, we do find that following shocks the growth in tourist arrivals from Malaysia's source markets has generally slowed. This result suggests there is a need to reduce the negative effects of slower growth in the recovery phase.