Using the SUR model of tourism demand for neighbouring regions in Sweden and Norway

Abstract

This chapter estimates the international demand for tourism in two neighbouring regions: the objective number 6 (SW:6) in Sweden and North Norway included – Trondelag (NWT) in North Norway, from five different countries: Denmark, the United Kingdom, Switzerland, Japan, and the United States. For each visiting country, and for Sweden and Norway, we specify separate equations by including the relevant information. we then estimate these ten equations using Zellner’s Iterative Seemingly Unrelated Regressions (ISUR). The benefit of this model is that the ISUR estimators utilize the information within and the relation between the equations present in the error correlation of the cross regressions (or equations) and hence is more efficient than single equation estimation methods such as ordinary least squares. Monthly time series data from 1993:01 to 2006:12 are used. The results show that the consumer price index, some lagged dependent variables, and several monthly dummies (representing seasonal effects) have significant impacts on the number of visitors to the SW:6 region in Sweden and NWT region in Norway. We also find that, in at least some cases, relative prices and exchange rates have significant effects on international tourism demand. Tourism has important impacts on the economies of both developing and industrialized countries, resulting in job creation, additional income for the private and public sectors, foreign currency receipts, higher investment and growth. Indeed, tourism has acted as a catalyst to economic restructuring in many recipient countries, assisting a shift away from primary sector activities, towards greater reliance on services and manufacturing. Given the scale of tourism’s contribution to the macroeconomic dimension over time, knowledge concerning the nature of the demand upon which it is based is of both theoretical and practical relevance. It is well known that tourism demand is responsive to such variables as income, relative prices and exchange rates. What is not known is how the responsiveness of demand to changes in these variables alters during a country’s economic transition and integration into the wider world initial or subsequent years? Does the sensitivity of tourism demand to changes in its own prices, or those of its competitors, change between different periods? Further questions concern the degrees of complementarity or substitutability between tourism destinations and the extent to which these change during periods of economic transition. Complementarity occurs if holidays in different destinations are purchased as a package. Alternatively, there may be an intense degree of competition between destinations. Relationships of complementarity or substitutability may change over