Modeling domestic holiday tourism demand in Australia: Problems and solutions

An econometric model is very useful for understanding the underlying relationship between tourism demand and economic variables such as income and travel prices. However, a long time series horizon of data is essential to run an econometric model that is consistent with economic theory. Although time series data on the number of domestic trips and visitor nights in Australia are available since 1978–79, breaks in the time series in different years have made it difficult to estimate a domestic holiday demand model. It is because the data series in different periods are not directly comparable. In this study, a simple data adjustment technique has been used to obtain comparable data series. Among several econometric demand models, a single equation multivariate time series demand model in a double log linear functional form was found to be the most appropriate and practical model to estimate and analyze the demand parameters of domestic holiday travel in Australia. However, the model with variables in level terms was observed having the “spurious regression problem” which has been corrected using the cointegration and error correction mechanisms. The estimated income and price elasticity of domestic holiday travel demand are consistent with economic theory and therefore can be used for forecasting and other purposes.