Long run and short run cointegration relationship for tourist arrivals in Malaysia
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Date
2007-06
Authors
Gan, Keng You
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
Tourism is an important source of foreign exchange earnings for many countries
in the world. This study aims to investigate the dynamic relationship between number of
tourist arrivals in Malaysia (TA) and the selected variables for nine selected countries;
China, Europe, Indonesia, Japan, Saudi Arabia, Singapore, Thailand, the United
Kingdom (UK) and the United States (US). Furthermore, this study investigates the
linkages between T A and the selected variables with and without the existence of the
exogenous dummy variables.
In this study, the selected variables are Consumer Price Index of origin country
(CPI), exchange rate (EXR) of Malaysia Ringgit to a unit of origin country currency,
number of tourist arrivals from origin country to substitute destination Singapore
(SUBS) and Thailand (SUBT). Monthly data from January 1999 to September 2006 is
used in the analysis. The exogenous dummy variables are bombing in Indonesia, severe
acute respiratory syndrome outbreak, attack on World Trade Center in New York City
and temperature of origin country. Investigation is carried out using standard procedures
for determining long run and short run relationship such as unit root test, Johansen and
Juselius cointegration test, Vector Autoregression (V AR) model, Granger causality test
and Vector Error Correction (VEC) model. The analysis shows the existence of unit root in the series suggesting the
variables are non-stationary and contain trend. However, all the variables are stationary
at first differenced. Preliminary results from regression analysis reveal that a large variation in the number of tourist arrivals can be explained by the chosen four variables.
The results of cointegration test show that there is a long run relationship between T A
and the selected variables.
The small value of coefficient for the error correction term for all the nine
selected countries suggest that it would take a moderate time for any short term
deviation to return to its equilibrium. Long run relationship shows that positive
relationship between TA and SUBT suggests that foreign tourists usually visit Malaysia
and Thailand as a single holiday destination. The analysis shows that exchange rate
negatively affects tourist arrivals in Malaysia from Singapore and the UK which suggest
that strong local currency is not a main factor affecting British and Singaporean tourists
for holidaying in Malaysia. The analysis with the four dummy variables shows that in most cases, tourist
arrivals are negatively affected by disastrous events such as severe acute respiratory
syndrome outbreak and terrorist bombings. The analysis also found evidence (even
though not significant) for the effect of temperature of origin country on tourist arrivals.
Description
Keywords
Tourism