Driving factors of the hospitality industry cycle

This study applies a Markov regime-switching model to examine Taiwan's hospitality industry based on the gross domestic product data of the hospitality industry from 1982Q1 to 2012Q2. On understanding the characteristics of Taiwan's hospitality industry, the study performs Granger causality tests to identify the driving factors of Taiwan's hospitality industry cycle. Two regimes of the hospitality industry cycle – a high-growth regime (HGR) and a low-growth regime (LGR) – are detected. Specifically, the average growth rate of HGR (LGR) is 3.01% (2.17%) and the standard deviation of HGR (LGR) is 0.69% (0.19%). The probability of the hospitality industry staying in HGR (LGR) is 98.25% (97.52%) and the expected duration of HGR (LGR) is about 57 (40) quarters. Further, the inbound tourism market growth is found to be a significant driving factor that can cause the hospitality industry to remain in the HGR. Valuable information and policy implications are provided to guide hospitality business managers and tourism policy-makers.