Factors affecting inbound tourism demand in Malaysia

This study examines the inbound tourism demand for Malaysia. Ten countries have been selected namely Singapore, Thailand, Indonesia, Brunei, China, Japan, Hong Kong, the United State of America, United Kingdom and Australia. These ten countries have been selected since they are among the most important generating tourists to Malaysia tourism industry. Seven macroeconomics variables are identified in the long run tourism market demand model for Malaysia. The variables are tourist arrivals to Malaysia, tourism price, substitute prices, travelling cost, income and exchange rates. They also have been tested for their significance in the short run along with other variables such as lagged dependent variable and dummy variables such Gulf War, the Asian economic crisis in 1997-98 and the outbreak of Severe Acute Respiratory Syndrome-SARS 2003. The cointegration analysis in the ARDL framework is applied to estimate the Malaysia tourism demand. This study starts with the stationarity test to perform the order of integration of the variables, followed by the estimation of the ARDL Model, the bounds test of the ARDL Model, the calculation and interpretation of the long-run and short-run elasticities, the diagnostic test and the accuracy evaluation of ARDL model. The empirical findings have shown that the 'bounds test' in overall model is consistent and reliable since the model fulfiU all the diagnostic test. Most of the variables such as tourism price, travelling cost, substitute cost and income are significant in the long-run as we1l as in the short-run. Most of them are statistica11y significant and theoretical1y correct, i.e: tourism prices are negatively related to the volume of tourist arrivals. Incomes in most cases have a positive relationship with tourist arrivals. For Singapore, Brunei, China and Australia tourists, Malaysia is considered as an inferior tourist destination as shown by their negative elasticity of income. Singapore and Thailand are seen either as complementary or substitute destinations by different originating countries. Word-of-mouth effect as represented by the past year tourist arrivals is a significant factor influencing inbound tourists. Dummy variables are also significant in the short run. However, in some markets such as Indonesia, Japan, United Kingdom and Australia, certain explanatory variables such as tourism prices are theoretically inconsistence but reasonable explanations have been provided. Based on the impirical findings some policy related to the tourism price and promotional of low cost fares as wen as development of tourism infrastructures and products can be suggested to enhance more development in Malaysia tourism industry.

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