Determinants and the impact of one-off events on tourism demand for Malaysia from four selected countries
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Date
2009-06
Authors
Mat Johor, Norul Baine
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Abstract
Development in the tourism industry has become the main vehicle of economic
growth and foreign exchange earner for many countries in the world, including Malaysia.
Given the importance of the industry, the purpose of this dissertation is investigate the
dynamic linkages between the number of tourist arrivals to Malaysia (TA) and selected
variables for four countries namely Japan, Saudi Arabia, the European countries (consisting
of France, Germany and the Netherlands) and Australia. Besides, this study also tries to
examine the impact of one-off events on Malaysia tourism demand.
In this study, the chosen variables are relative price level between Malaysia and
origin country of the tourists (CPI), exchange rate (EXR) of Malaysian Ringgit to a unit of
currency of the origin country, transportation cost (TC) proxies by the spot crude oil of
Texas Intermediate per barrel and relative tourism price at substitute destination, Thailand
(SUBT_P). Monthly data are used covering the period from January 1999 to September 2008
with the exception of quarterly data for Australia. For more detail analysis, the whole data is
divided into two shorter periods that is from January 1999 to July 2005 and from August
2005 to September 2008. The one-off events that are being considered include the invasion
of Iraq, outbreaks of Avian Flu disease, temperature at origin country, Visit Malaysia Year
2007 and period of celebration surrounding the Malaysia Independence Day. This study is
carried out following standard procedures for determining long-run and short-run
relationship such as unit root test, Vector Autoregression (V AR) model, Johansen and
Juselius cointegration test, Vector Error CorreCtion (VEC) model and Granger causality test.
The results from the preliminary analysis show the existence of unit root in the series
suggesting that the variables are non-stationary at level. All the variables are found to be
integrated of the same order and this has enabled the analysis to proceed to the co integration
test. The results from correlation analysis show significant relation between tourist arrivals
and the selected variables for all countries. Besides, the results of cointegration test show
there is a long-run relationship between TA and the selected variables. Unexpectedly,
relative price is found to be positively related to TA while exchange rate is negatively related
toTA.
The findings suggest that Thailand is a substitute destination for Arab tourists in the
short-term and is a complementary destination in the long-term. The small values of ECT for
all countries indicate that once shocks occur, the variables takes moderate time to readjust
and react to its equilibrium level. Unlike the case for Saudi Arabia, for the case of Japan in
the second sub-sample, Thailand is found to be a complementary destination in the shortterm
and is a substitute destination in the long-term. Analysis with the existence of dummy
variables shows that invasion of Iraq, temperature at origin country and period of celebration
surrounding the Independence Day significantly affect the number of tourist arrivals to
Malaysia. Although a neighboring country, there is evidence that Thailand is not always a
complementary destination for foreign tourists to Malaysia.
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Keywords
Investigate the dynamic linkages between the number of tourist , arrivals to Malaysia and selected variables for four countries