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Using the SUR Model of Tourism Demand forNeighbouring Regions in Sweden and Norway6A. Khalik SalmanMid Sweden University, Social science / Economics DepartmentSweden1. IntroductionThis chapter estimates the international demand for tourism in two neighbouring regions:the objective number 6 (SW:6) in Sweden and North Norway included – Tröndelag (NWT)in North Norway, from five different countries: Denmark, the United Kingdom,Switzerland, Japan, and the United States. For each visiting country, and for Sweden andNorway, we specify separate equations by including the relevant information. we thenestimate these ten equations using Zellner’s Iterative Seemingly Unrelated Regressions(ISUR). The benefit of this model is that the ISUR estimators utilize the information withinand the relation between the equations present in the error correlation of the crossregressions (or equations) and hence is more efficient than single equation estimationmethods such as ordinary least squares. Monthly time series data from 1993:01 to 2006:12are used. The results show that the consumer price index, some lagged dependent variables,and several monthly dummies (representing seasonal effects) have significant impacts onthe number of visitors to the SW:6 region in Sweden and NWT region in Norway. We alsofind that, in at least some cases, relative prices and exchange rates have significant effects oninternational tourism demand.Tourism has important impacts on the economies of both developing and industrializedcountries, resulting in job creation, additional income for the private and public sectors,foreign currency receipts, higher investment and growth. Indeed, tourism has acted as acatalyst to economic restructuring in many recipient countries, assisting a shift away fromprimary sector activities, towards greater reliance on services and manufacturing. Given thescale of tourism’s contribution to the macroeconomic dimension over time, knowledgeconcerning the nature of the demand upon which it is based is of both theoretical andpractical relevance. It is well known that tourism demand is responsive to such variables asincome, relative prices and exchange rates. What is not known is how the responsiveness ofdemand to changes in these variables alters during a country’s economic transition andintegration into the wider world initial or subsequent years? Does the sensitivity of tourismdemand to changes in its own prices, or those of its competitors, change between differentperiods? Further questions concern the degrees of complementarity or substitutabilitybetween tourism destinations and the extent to which these change during periods ofeconomic transition. Complementarity occurs if holidays in different destinations arepurchased as a package. Alternatively, there may be an intense degree of competitionbetween destinations. Relationships of complementarity or substitutability may change over
98Advances in Econometrics - Theory and Applicationstime as lower income destinations emerge from relative poverty to achieve a higher level ofdevelopment. Little information is available about this issue. It is not known, for example,whether lower income destinations tend to become more or less competitive over time,either relative to other developing countries or relative to more industrialized nations.Different models have been used to estimate tourism demand and some types of model aremore appropriate for examining the above questions than others. The vast majority ofstudies of tourism demand have relied on single equation models of demand, estimatedwithin a static context (for example, Uysal and Crompton, 1984; Gunadhi and Boey,1986).These models are not derived from consumer demand theory and fail to quantify thechanges in demand behaviour that occur over time. Innovations in the methodology weresubsequently introduced in the form of single equation models of demand estimated usingan error correction methodology were subsequently introduced in single equation model ofdemand estimated using an error correction methodology (Syriopoulos, 1995). Kulendran(1996) used a general to specific, error correction model to estimate the Australia demandfor tourism in the form of visits per capita to outbound destinations and demonstrated thatthe model has good forecasting ability. This modelling approach has the advantage ofexplicit treatment of the time dimension of tourism demand behaviour and allows forimproved econometric estimation of the specified equations.A More recently approach to tourism demand estimation involves a system -wide approachby using the ISUR Model (Salman et al. 2010). This system of study is particularly useful fortesting the properties of homogeneity and symmetry which are basic to consumer demandtheory. Hence, it provides a stronger theoretical basic for estimating the cross- priceelasticities of demand than the single equation approach.This chapter was used system wise approach by the ISUR Model to examine tourismdemand by the UK, Switzerland, Denmark, Japan and The USA in the neighboringdestination number 6 (SW:6) and (NWT) in Norway. The UK, Switzerland, Denmark, Japanand The USA are major origin countries for tourism in the destinations under consideration.SW:6 in Sweden and NWT in Norway are key destinations, accounting for over one-thirdof all receipts from tourism in the European Union in 2005. The absolute value of theirreceipts from tourism is very high, at over $ 200 million in 2005. The choice of the countriesas destinations for analysis is also appropriate owing to their position as geographicneighbours. Complementarity or substitutability in tourism demand, as indicated by thesigns of the relative-price elasticities of demand, is of particular relevance in this context.This chapter pays attention to this issue, which has not previously been examined for thecase of neighbouring countries using the ISUR approach. Sweden and Norway areinteresting cases for consideration owing to their position as economies in transition duringthe period under consideration. By the early 1990s, the start years of the period under study,they had adopted new development policies, high dependence on industry, movingtowards increased globalization, economic integration, and foreign competition. Swedenhad joined the ranks of the more developed European economies in the period under study.Hence, an innovative feature of this chapter is its examination of the evolution of tourismdemand during these countries’ transition to a new technological system and globalizationstatus. It also permits examination of the extent to which the behaviour of demand becomemore or less similar over time with respect to changes in prices and exchange rates. Thus,this study provides useful information, at the cross-country level, about change in a majoractivity within each of the economies.
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