Dynamics in the Specification of Tourism Demand Models

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Abstract
The specification of a tourism demand model now commonly includes lagged demand as an explanatory variable. This raises issues in the formulation and interpretation of econometric tourism demand models. It is argued that a simple lagged demand term is not sufficient to account for the dynamics of tourism demand. Many alternative specifications of the dynamic elements and form have been used in tourism demand modelling. This paper helps to resolve the issue of how the dynamics should be specified. It does this by a thorough review of the dynamic elements relevant to tourism demand and by demonstrating that the specification does make a difference in practice. Consideration of different formulations of the dynamics of tourism demand, drawing on theory and specific characteristics of tourism, leads to the recommendation of an ARIMA with explanatory variables model form.