Estimating Price Effects in an Almost Ideal Demand Model of Outbound Thai Tourism to East Asia

Discussion Papers are a series of manuscripts in their draft form. They are not intended for circulation or distribution except as indicated by the author. For that reason Discussion Papers may not be reproduced or distributed without the written consent of the author. Abstract This paper analyzes the responsiveness of Thai outbound tourism to East Asian destinations, to changes in effective relative price of tourism, total real total tourism expenditure, and one-off events. The nonlinear and linear Almost Ideal Demand (AID) models are estimated with monthly data to identify the price competitiveness and interdependencies of tourism demand for competing destinations in both long run (static) and short run error correction (dynamic) specifications. The homogeneity and symmetry restricted long run and short run AID models are estimated to calculate elasticities. The income elasticities, and the compensated and uncompensated own-price and cross-price elasticities, provide useful information for public and private tourism agents at the various destinations to maintain and improve price competitiveness. The empirical results show that price competitiveness is important for tourism demand for Japan, Korea and Hong Kong in the long run, and for Hong Kong and Taiwan in the short run. With regard to long run cross-price elasticities, the substitution effect can be found in the following pairs of destinations: Contrary to the findings obtained from the long run AID specification, Japan-Korea and Taiwan-Korea are complements in the short run. Furthermore, the real total tourism expenditure elasticities indicate that China's share of real total tourism expenditure is inelastic in response to a change in real total tourism expenditure, while Korea's share of real total tourism expenditure is most sensitive to changes in expenditure in the long run. The greatest impact on the share of real total tourism expenditure in the short run is tourism demand for Taiwan. The contribution of tourism to economic growth and development has been well documented. In recent decades, tourism has become one of the world's largest and fastest growing sectors. It plays many important economic roles, especially as a major source of foreign exchange earnings. Numerous attempts have been made to understand the key determinants of tourism demand, with the purpose of implementing appropriate policies and strategies to attract a greater number of international visitors. As a result, the competition among tourist destinations has become intense. Price competitiveness is a major factor that could directly affect the attractiveness of a particular destination as changes …