IP Publishing Ltd
Vol 16 No 1 March 2010
SPECIAL FOCUS: THE ECONOMICS OF TOURISM – NEW DIRECTIONS
Guest Editors: Adam Blake and Isabel Cortés-Jiménez
5 Introduction
11 Rewards to education in the tourism sector: one step ahead
25 Exchange rate regimes and tourism
45 The rise, fall and renaissance of the resort: a simple economic model
63 Tourism demand modelling and forecasting: how should demand be measured?
83 An econometric analysis of the aggregate outbound tourism demand of Turkey
99 Quantitative assessment of stakeholder perceptions for tourism development
OTHER PAPERS:
137 Heterogeneous technical efficiency of hotels in Luanda, Angola
153 Forecasting British tourist arrivals in the Balearic Islands using meteorological variables
169 Tourism and economic growth: a panel data analysis for Pacific Island countries
185 Post-merger stock performance of acquiring hospitality firms
217 Testing the empirical link between tourism and competitiveness: evidence from Puerto Rico
235 Disney’s return to theme park dominance in Florida
251 Variety-seeking and inertial behaviour: the disutility of distance
Title: Rewards to education in the tourism sector: one step ahead
Abstract: The authors analyse private returns to education in the Spanish tourism sector – that is, the increase in salary associated with an additional year of study. Mincer-type functions are estimated, drawing on a large sample from the Spanish Survey on Working Conditions, which allows robust estimations. Unlike previous analyses, the existence of an ability bias is considered explicitly through the use of instrumental variables techniques. The results show that, contrary to previous estimates based on OLS, the estimated returns in the tourism sector are not significantly different from those of the Spanish economy as a whole. The authors also provide additional evidence on the heterogeneity that is apparent when the tourism sector workforce is disaggregated by age, sex and work experience.
Title: Exchange rate regimes and tourism
Abstract: The main objective of this paper is to analyse the effect of exchange rate arrangements on international tourism. The ambiguity in the literature about the effect of exchange rate volatility contrasts with the magnitude of the impact of a common currency on trade. The authors apply panel data techniques to analyse the relevance of a common currency to tourism, finding that it is a major factor in the determination of tourist arrivals. They also analyse the impact of several de facto exchange rate arrangements on tourism, finding that less flexible exchange rates promote tourism.
Title: The rise, fall and renaissance of the resort: a simple economic model
Abstract: There is a large volume of literature on the life cycle of the tourist resort. However, there is scope to develop this body of work by harnessing recent contributions in the economics literature on cycles or waves in demand. This paper presents a simple economic model of the rise, fall and possible renaissance of the resort. The analysis is based on the work of Cowan et al (1997, 2004), which models waves in consumption when there are interdependencies between consumers. Of particular interest here are the conditions under which we may observe a ‘travelling wave’, where a new resort starts off as a distinctive and select venue but then, as it grows in popularity, starts to go downmarket. After the resort has been unfashionable for some time and unattractive associations are far enough in the past, a new sort of pioneer (accompanied by a new wave of investment) can start off a second wave of popularity. The model presented was motivated by reference to the history of the city of Bath, which enjoyed a long period as a very popular resort and then fell into decline in the 19th century, but enjoyed a renaissance in the mid-20th century to become one of the most popular medium-sized towns in England.
Title: Tourism demand modelling and forecasting: how should demand be measured?
Abstract: Tourist arrivals and tourist expenditure, in both aggregate and per capita forms, are commonly used measures of tourism demand in empirical research. This study compares these two measures in the context of econometric modelling and the forecasting of tourism demand. The empirical study focuses on demand for Hong Kong tourism by residents of Australia, the UK and the USA. Using the general-to-specific modelling approach, key determinants of tourism demand are identified based on different demand measures. In addition, the forecasting accuracy of these demand measures is examined. It is found that tourist arrivals in Hong Kong are influenced mainly by tourists’ income and ‘word-of-mouth’/habit persistence effects, while the tourism price in Hong Kong relative to that of the tourist origin country is the most important determinant of tourist expenditure in Hong Kong. Moreover, the aggregate tourism demand models outperform the per capita models, with aggregate expenditure models being the most accurate. The implications of these findings for tourism decision making are that the choice of demand measure for forecasting models should depend on whether the objective of the decision maker is to maximize tourist arrivals or expenditure (receipts), and also that the models should be specified in aggregate form.
Title: An econometric analysis of the aggregate outbound tourism demand of Turkey
Abstract: This study empirically examines aggregate tourism outflows in the case of Turkey using the time-series data for 1970–2005. As far as this article is concerned, there is no previous empirical work dealing with tourist outflows from Turkey. The previous tourism studies of Turkey have focused, by and large, on inbound tourism demand analyses. However, as a developing country and an important tourism destination, Turkey has also been a significant source for generating a substantial number of tourists in recent years. Therefore, the tourist outflows also merit empirical analysis. Total tourist outflows from Turkey are related to real income and relative prices. The bounds testing to cointegration procedure proposed by Pesaran et al (2001) is employed to compute the short- and long-run elasticities of income and relative prices. An augmented form of Granger causality analysis is conducted among the variables of outbound tourist flows, income and relative prices to determine the direction of causality. In the long run, causality runs interactively through the error correction term from income and relative prices to outbound tourist flows. However, in the short run, causality runs only from income to outbound tourism flows. The aggregate tourism outflows equation is also checked for the parameter stability via the tests of cumulative sum (CUSUM) and cumulative sum of the squares (CUSUMSQ). The results suggest that income is the most significant variable in explaining total tourist outflows from Turkey and there is a stable outbound tourism demand function. The results also lead to important policy recommendations.
Title: Quantitative assessment of stakeholder perceptions for tourism development
Abstract: Tourism development has both positive and negative impacts on an economy. Various studies have attempted to capture these impacts using sophisticated quantitative modelling tools such as input–output models or computable general equilibrium models. Other studies have been designed to understand the perceptions of stakeholders. These studies are essentially descriptive and have not applied modelling approaches to capture the perceptions systematically. In this paper, a relatively new modelling approach, the analytic hierarchy process (AHP), is used to capture systematically the subjective perceptions of stakeholders about tourism development in the Jebel Akhdar region of the Sultanate of Oman. The results show that respondents generally prefer a huge increase in tourism activity in the region, although they also anticipate some negative impacts.
Abstract: This article analyses the economic determinants of demand for tourism goods and services by Australian households distinguished by the travel motives of leisure and non-leisure. Using tourist consumption data collected through quarterly national visitor surveys, two systems of demand equations are estimated, based on the almost ideal demand system and incorporating seasonality. The study aggregates itemized tourist expenditure data into five broad commodity groups: accommodation, food, transportation, shopping and entertainment. The estimated models obey the basic postulates of consumer theory – homogeneity and symmetry. Overall, demand for the five commodity aggregates is found to be price inelastic, while the degree of price sensitivity varies across the commodity aggregates and between the two types of tourists. In general, demand by leisure tourists is found to be more sensitive to price than demand by non-leisure tourists. The cross-price elasticities derived from both models reveal a gross complementarity of demand, implying that tourists’ overall utility depends on the joint consumption of a bundle of goods and services. The observed price-inelastic demand, coupled with the apparent complementarity of demand, may reflect the possibility that latent price sensitivity is associated with tourist demand.
Title: Heterogeneous technical efficiency of hotels in Luanda, Angola
Abstract: This paper uses a random frontier model to analyse technical efficiency in a data set of hotels in Luanda, the capital city of Angola, for 1990–2007. The hotels are ranked according to their technical efficiency, disentangling homogeneous and heterogeneous variables. This methodology attempts to account for observed and unobserved heterogeneity across hotels. The study rests on the premise that hotels in Luanda have an established role in the business market and emerging significance in the tourism market, broadly defined. Based on the analysis, the authors conclude that those hotels adopting a more strategic approach are better, and thus more efficient, than those that lack vision. They then point to the wider implications of the discussion.
Title: Forecasting British tourist arrivals in the Balearic Islands using meteorological variables
Abstract: This paper investigates the possibility of improving the predictive ability of a tourism demand model with meteorological explanatory variables. The authors use as a case study the monthly British tourism demand for the Balearic Islands (Spain). For this purpose, a transfer function model and causal artificial neural network are fitted. The results are compared with those obtained by non-causal methods: an ARIMA model and an autoregressive neural network. The results indicate that incorporating meteorological variables can increase predictive power, although the most accurate prediction is obtained using a non-causal model – specifically, an autoregressive neural network.
Title: Tourism and economic growth: a panel data analysis for Pacific Island countries
Abstract: The contribution of tourism to the economic growth of Pacific Island countries (PICs) has achieved significance in the past decade. The shift in the economic policies of the PICs from the late 1980s has been decisively away from import substitution and agriculture to urban-based manufacturing and services sectors. Tourism is the main component of the services sector in the PICs. The contribution of tourism to economic growth in Fiji, Tonga, the Solomon Islands and Papua New Guinea is expected to grow. The authors use panel data for the four PICs to test the long-run relationship between real GDP and real tourism exports. They find support for panel cointegration and the results suggest that a 1% increase in tourism exports increases GDP by 0.72% in the long run and by 0.24% in the short run.
Title: Post-merger stock performance of acquiring hospitality firms
Abstract: This study examines the long-term post-merger stock performance of acquiring hospitality firms between 2000 and 2006 in the USA. The Jensen measure is used to investigate the long-term financial performance of acquiring hospitality firms. A sample of 15 hospitality companies with 8 lodging REITs and 7 hotel/casino companies is analysed. The companies’ stock performances are compared against indices of related hotel and REITs sectors and against the S&P 500 index. The study generates mixed findings. The results showed significant positive gains for the acquiring firms when compared to the S&P 500 index; yet, the acquiring firms failed to generate significant gains when compared to sector indices. Furthermore, the REITs firms performed less well than the hotel/casino firms when compared against both market and sector indices.
Abstract: This paper considers a tourism supply chain (TSC) for package holidays. Three sectors are included: a theme park, hotel and accommodation providers and tour operators. The different sectors are coordinated with each other, while enterprises within each compete in order to optimize their own objectives. This research studies the impacts of competitive and cooperative relationships between the enterprises on the dynamics of the TSC under quantity competition. Simultaneous non-cooperative games are used to model the competitive quantity decisions between enterprises in the same sector. A sequential game is established between the three sectors to coordinate tourist numbers. Sensitivity analyses are conducted to examine the dynamics of the supply chain in terms of several operating parameters, such as operating costs, sector size and product differentiation. Among the key findings are that member enterprises in one sector can benefit from intensified competition in a complementary sector in the same layer and that the upstream enterprises in the tourism supply chain prefer package holiday product differentiation strategies.
Title: Testing the empirical link between tourism and competitiveness: evidence from Puerto Rico
Abstract: This study examines the empirical relationship between tourism and the competitiveness of a destination. It uses the cointegration and error correction model (ECM) in a bivariate context as a precondition to apply the Granger causality test. This procedure was carried out in the case of Puerto Rico’s tourism industry during 1960–2004. The study found cointegration in the intertemporal rather than the contemporaneous effects, as well as a one-directional causality running from changes in tourism spending to changes in competitiveness. This result highlights the long-run equilibrium spending behaviour of tourists as a major concern of destination managers.
Title: Disney’s return to theme park dominance in Florida
Abstract: This paper investigates the increasing evidence that Disney has restored its market share dominance and price leadership power in the Central Florida theme park market, while reasserting this region as the base for its global empire. Disney appears to have weathered deep-pocketed challenges from Universal Studios and Las Vegas Hotels successfully, as well as addressing concerns about its ageing brands, adverse demographic trends and post-9/11 international travel restrictions. After analysing attendance data series and updating ticket price patterns, the authors design a classical attendance demand model to investigate alternative explanations for Disney’s surprising re-emergence. The model generates estimates of critical elasticities with rival theme park admission prices, gasoline prices, airfares, income and currency exchange rate fluctuations. These findings are pitted against conventional wisdom in explaining Disney’s resurgence.
Title: Variety-seeking and inertial behaviour: the disutility of distance
Abstract: This study incorporates the theories of variety-seeking and inertial behaviour into the tourist decision-making process by observing the dependence of an individual’s current destination choice on his or her previous choice. The literature suggests that attributes characterizing a buying alternative are crucial in understanding the individual consumption pattern. Accordingly, this study proposes that the effect of the attribute ‘distance’ is contingent on a tourist’s variety-seeking or inertial behaviour at the moment of choosing a destination, in the sense that these behaviour types could increase or diminish the negative effect of distance. The empirical application is carried out in Spain, by applying mixed logit models. The results show that variety-seeking behaviour reduces the dissuasive effect of distance and that inertial behaviour increases it.