An econometric analysis of international tourism demand in Hong Kong : a cointegration and error correction approach

The purpose of this study is to develop econometric models to better understand the economic factors affecting inbound tourist flows from each of six origin countries that contribute to Hong Kong’s international tourism demand. To this end, we test alternative cointegration and error correction approaches to examine the economic determinants of tourist flows to Hong Kong, and to produce accurate econometric forecasts of inbound tourism demand. Our empirical findings show that permanent income is the most significant determinant of tourism demand in all models. The variables of own price, weighted substitute prices, trade volume, the share price index (as an indicator of changes in wealth in origin countries), and a dummy variable representing the Beijing incident (1989) are also found to be important determinants for some origin countries. The average long-run income and own price elasticity was measured at 2.66 and – 1.02, respectively. It was hypothesised that permanent income is a better explanatory variable of long-haul tourism demand than current income. A novel approach (grid search process) has been used to empirically derive the weights to be attached to the lagged income variable for estimating permanent income. The results indicate that permanent income, estimated with empirically determined relatively small weighting factors, was capable of producing better results than the current income variable in explaining long-haul tourism demand. This finding suggests that the use of current income in previous empirical tourism demand studies may have produced inaccurate results. The share price index, as a measure of wealth, was also found to be significant in two models. Studies of tourism demand rarely include wealth as an explanatory forecasting long-haul tourism demand. However, finding a satisfactory proxy for wealth common to different countries is problematic. This study indicates with the ECM (Error Correction Models) based on the Engle-Granger (1987) approach produce more accurate forecasts than ECM based on Pesaran and Shin (1998) and Johansen (1988, 1991, 1995) approaches for all of the long-haul markets and Japan. Overall, ECM produce better forecasts than the OLS, ARIMA and NAÏVE models, indicating the superiority of the application of a cointegration approach for tourism demand forecasting. The results show that permanent income is the most important explanatory variable for tourism demand from all countries but there are substantial variations between countries with the long-run elasticity ranging between 1.1 for the U.S. and 5.3 for U.K. Price is the next most important variable with the long-run elasticities ranging between -0.8 for Japan and -1.3 for Germany and short-run elasticities ranging between – 0.14 for Germany and -0.7 for Taiwan. The fastest growing market is Mainland China. The findings have implications for policies and strategies on investment, marketing promotion and pricing.

The application of remote sensing to the management of urban wildlife habitats

The project set out with two main aims. The first aim was to determine whether large scale multispectral aerial photography could be used to successfully survey and monitor urban wildlife habitats. The second objective was to investigate whether this data source could be used to predict population numbers of selected species expected to be found in a particular habitat type. Panchromatic, colour and colour infra-red, 1:2500 scale aerial photographs, taken in 1981 and 1984, were used. For the orderly extraction of information from the imagery, an urban wildlife habitat classification was devised. This was based on classifications already in use in urban environments by the Nature Conservancy Council. Pilot tests identified that the colour infra-red imagery provided the most accurate results about urban wildlife habitats in the study area of the Blackbrook Valley, Dudley. Both the 1981 and 1984 colour infra-red photographs were analysed and information was obtained about the type, extent and distribution of habitats. In order to investigate whether large scale aerial photographs could be used to predict likely animal population numbers in urban environments, it was decided to limit the investigation to the possible prediction of bird population numbers in Saltwells Local Nature Reserve. A good deal of research has already been completed into the development of models to predict breeding bird population numbers in woodland habitats. These models were analysed to determine whether they could be used successfully with data extracted from the aerial photographs. The projects concluded that 1:2500 scale colour infra-red photographs can provide very useful and very detailed information about the wildlife habitats in an urban area. Such imagery can also provide habitat area data to be used with population predictive models of woodland breeding birds. Using the aerial photographs, further investigations into the relationship between area of habitat and the breeding of individual bird species were inconclusive and need further research.