Tourism Demand in Malaysia: A cross-sectional pool time-series analysis

Abstract

This paper estimates tourism demand in Malaysia based on the key economic factors like income, price, exchange rate, consumer price index, distance, population and economic crisis using a modified Gravity model. The movement, pattern and changes of international tourist arrivals are also examined. A cross-sectional pool time-series of tourist arrivals from Australia, Hong Kong, Indonesia, United Kingdom, Thailand, Taiwan and China through using modified Gravity Model was applied. Log-linear equation indicates that the tourism demand is highly correlated with Gross National Income (GNI) of the countries which showing the impact on the standard of living. On the other hand, tourism demand negatively correlated with Exchange Rate (ER) as tourist from higher purchasing power prefers to visit Malaysia. Consumer Price Index (CPI) or inflation rate reduce number of tourist to travel. The increasing number of tourist arrivals was influenced by population growth and distance may reduce tourism demand. Economic crisis negatively affected the tourism demand from the ASEAN countries but positively correlated with the western and other continents. This study clearly indicates that despite of regional economic crisis Malaysian government can still rely on tourism industry as a means of sustaining the economy through international tourists. During the last several decades' tourism has emerged as one of the major industries in the world economy. Tourism revenues have grown to the third largest industry after oil and automobiles. This sector constitutes nearly 10% of the world gross income, 8% of world exports and up to 35% of world trade in services. The number of tourists' journeys increased from 25 million in 1950 to 700 million in 2003, and is predicted to reach 1.6 billion in 2020 (WTTC, 2006). This implies that average annual growth rate of tourism sector at 3.5%, while the growth rate of heavy industry is 3% (WTTC, 2006). International tourism has becoming a major foreign exchange earner for many low-income countries and small islands, and it is a principal export for 83% of developing countries (WTO, 2002). Many countries attempt to develop tourism sector and increase the number of incoming visitors because of several reasons: international tourists bring foreign currency to the host country; tourism sector is much more merciful toward environment than many industries producing goods; and growth in tourism industry accelerates other related industries (retail, entertainment and