Estimating Demand Elasticities in Non-Stationary Panels: The Case of Hawaii's Tourism Industry

Peter Fuleky, Carl Bonham and Qianxue Zhao
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Qianxue Zhao: University of Hawaii Economic Research Organizaion

No 201314, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: It is natural to turn to the richness of panel data to improve the precision of estimated tourism demand elasticities. However, the likely presence of common shocks shared across the underlying macroeconomic variables and across regions in the panel has so far been neglected in the tourism literature. We deal with the e ects of cross-sectional dependence by applying Pesaran’s (2006) common correlated e ects estimator, which is consistent under a wide range of conditions and is relatively simple to implement. We study the extent to which tourist arrivals from the US Mainland to Hawaii are driven by fundamentals such as real personal income and travel costs, and we demonstrate that ignoring cross-sectional dependence leads to spurious results.

Keywords: Panel Cointegration; Cross-Sectional Dependence; Tourism Demand; Hawaii (search for similar items in EconPapers)
JEL-codes: C23 C51 L83 R41 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-08
New Economics Papers: this item is included in nep-tur
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http://www.economics.hawaii.edu/research/workingpapers/WP_13-14R.pdf First version, 2013 (application/pdf)

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Working Paper: Estimating Demand Elasticities in Non-Stationary Panels: The Case of Hawaii's Tourism Industry (2013)
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