Dynamic Panel Data Analysis of European Tourism Demand in Malaysia

The purpose of this study is to identify and measure the impact of the main determinants of the international tourist arrivals to the Malaysia. The annual panel data set includes the number of arrivals from the 19 most important European countries during the period 1998-2007, and a number of possible explanatory variables. Taking into account the changing structure of consumer preferences, a dynamic model is estimated. The results suggest that the habit persistence (word-of-mouth), income, accommodation capacity (hotel rooms) and political stability have positive effects on European tourism demand in Malaysia. One of the main conclusions of the study is the significant value of the lagged dependent variable (0.52), which may be interpreted as a major word-of-mouth effect on tourism demand in Malaysia. In addition, the dynamic panel data estimation highlights the importance of the accommodation capacity as the most important factor in attracting more tourism to Malaysia.