Edith Cowan University Research Online Theses: Doctorates and Masters Theses 2010 An econometric analysis of Australian domestic tourism demand Ghialy C. Yap Edith Cowan University Recommended Citation Yap, G. C. (2010). An econometric analysis of Australian domestic tourism demand. Retrieved from https://ro.ecu.edu.au/theses/121 This Thesis is posted at Research Online. https://ro.ecu.edu.au/theses/121 Edith Cowan University Research Online Theses: Doctorates and Masters Theses 2010 An econometric analysis of Australian domestic tourism demand Ghialy C. Yap Edith Cowan University Recommended Citation Yap, G. C. (2010). An econometric analysis of Australian domestic tourism demand. Retrieved from http://ro.ecu.edu.au/theses/121 This Thesis is posted at Research Online. http://ro.ecu.edu.au/theses/121 Edith Cowan University Copyright Warning You may print or download ONE copy of this document for the purpose of your own research or study. 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Higher penalties may apply, and higher damages may be awarded, for offences and infringements involving the conversion of material into digital or electronic form. AN ECONOMETRIC ANALYSIS OF AUSTRALIAN DOMESTIC TOURISM DEMAND Ghialy Choy Lee Yap 2010 Doctor of Philosophy USE OF THESIS The Use of Thesis statement is not included in this version of the thesis. A Statement of Confidential Information I, Ghialy Yap, have accessed information which is provided by Tourism Research Australia, the Australian Bureau of Statistics and the Reserve Bank of Australia for the purpose of undertaking research and writing a thesis. The data employed are available in the websites of the above-mentioned government agencies. In Chapter 4 of this thesis, the tourism data used in the tables and graphs are extracted from the quarterly reports of Travel by Australians, from March 1999 to December 2007, by Tourism Research Australia in Canberra. Copyright 2010 Commonwealth of Australia reproduced by permission. Signed by, ______________________ Ghialy Choy Lee Yap PhD Scholar Faculty of Business and Law Edith Cowan University Date: 5th March 2010 iii Preface Several parts of this PhD research have been accepted for journal publications and academic conferences, as follows. (i) “Modelling interstate tourism demand in Australia: A cointegration analysis”, Mathematics and Computers in Simulation vol. 79 (2009) pp. 2733-2740. (ii) “An empirical analysis of interstate and intrastate tourism demand in Australia”, a peer-reviewed conference paper in the 2007 CAUTHE Conference. (iii) “Modelling Australian domestic tourism demand: A panel data analysis”, a peer-reviewed conference paper for the 18th IMACS World Congress- MODSIM09 International Congress on Modelling and Simulation. (iv) “Investigating other factors influencing Australian domestic tourism demand”, a peer-reviewed conference paper for the 18th IMACS World Congress-MODSIM09 International Congress on Modelling and Simulation. iv Abstract In 2007, the total spending by domestic visitors was AUD 43 billion, which was 1.5 times higher than the aggregate expenditure by international tourists in Australia. Moreover, domestic visitors consumed 73.7% of the Australian produced tourism goods and services whereas international tourists consumed 26.3%. Hence, this shows that domestic tourism is an important sector for the overall tourism industry in Australia. This present research determines the factors that influence domestic tourism demand in Australia and examines how changes in the economic environment in Australia could influence this demand. The main aim of this research is to achieve sustainability of domestic tourism businesses in Australia. In Chapters Two and Three, a review of the tourism demand literature is conducted. Most of the empirical papers argued that household income and travel prices are the main demand determinants. However, the literature has largely neglected other possible indicators, namely consumers‟ perceptions of the future economy, household debt and working hours, which may play an important role in influencing domestic tourism demand in Australia. The PhD thesis is divided into three parts. For the initial phase, a preliminary study is conducted using Johansen‟s cointegration analysis to examine the short- and long-run coefficients for the determinants of Australian domestic tourism demand. In the next section of this thesis, an alternative approach using panel data analysis to estimate the income and price elasticities of the demand is applied, as a panel data framework provides more information from the data and more degrees of freedom. In the final section, this thesis also investigates whether other factors (such as the consumer sentiment index, and measures of household debt and working hours) influence Australians‟ demand for domestic trips. This study reveals several distinct findings. First, the income elasticity for domestic visitors of friends and relatives (VFR) and interstate trips is negative, implying that Australian households will not choose to travel domestically when there is an increase in household income. In contrast, the study finds that the income variables are positively v correlated with domestic business tourism demand, indicating that the demand is strongly responsive to changes in Australia‟s economic conditions. Second, an increase in the current prices of domestic travel can cause the demand for domestic trips to fall in the next one or two quarters ahead. Third, the coefficients for lagged dependent variables are negative, indicating perhaps, that trips are made on a periodic basis. Finally, to a certain extent, the consumer sentiment index, household debt and working hours have significant influences on domestic tourism demand. The current econometric analysis has significant implications for practitioners. A better understanding of income and travel cost impacts on Australian households‟ demand allows tourism companies to develop price strategies more effectively. Moreover, tourism researchers can use these indicators (such as measures of consumers‟ confidence about their future economy, household debt and working hours) to investigate how changes in these factors may have an impact on individual decisions to travel. vi Declaration I certify that this thesis does not, to the best of my knowledge and belief: (i) incorporate without acknowledgement any material previously submitted for a degree of diploma in any institution of higher education; (ii) contain any material previously published or written by another person except where due reference is made in the text; or (iii) contain any defamatory material. I also grant permission for the library at Edith Cowan University to make duplicate copies of my thesis as required. Signed by, _________________________ Ghialy Choy Lee Yap PhD Scholar Faculty of Business and Law Edith Cowan University th Date: 5 March 2010 vii Acknowledgements The journey from the beginning to the completion of this thesis was full of challenges, but the experience was rewarding. I encountered many nice and kind people who gave me good advice and courage to go through this journey. Hence, this thesis would not be completed successfully without their support. First and foremost, I would like to thank my principal supervisor, Professor David Allen, for his emotional support and sharp intellect. As English is not my first language, he always listened to my queries with empathy and explained his ideas and comments patiently. More importantly, I am indebted to his time and efforts for editing numerous versions of my thesis. I would also like to thank my associate supervisor, Dr. Riaz Shareef, who has a high level of knowledge in tourism literature. I am gratitude for his guidance in constructing the literature review chapters, and his motivating conversations whenever I was depressed. Since the commencement of my PhD candidature, I have been in receipt of a Three-and- a half years joint scholarship from Sustainable Tourism Cooperative Research Centre (STCRC) and Edith Cowan University (ECU). This scholarship has supported my life throughout the candidature. Given this opportunity, I would like to thank Professor Beverly Sparks, the Director of the STCRC education program, and Professor Marilyn Clark-Murphy, the Head of School (in 2006), for granting this scholarship for my research project. I would like to dedicate my thanks to Dr. Greg Maguire and Dr. Jo Mcfarlane (the writing consultants), who provided guidance on my English writing styles and grammar. Similarly, I would like to thank Associate Professor Zhaoyong Zhang and Dr. Lee Kian Lim for providing positive criticisms of my research proposals. Also, I am grateful to several ECU staff: