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VECM Model and Modeling International

Tourism Demand in Thailand

(Working paper No. 4/2006)

Chukiat Chaiboonsri
Received a scholarship from the Indian Government study Ph.D. (Economics)
at Bangalore University from 2005-2010.
chukiat1973@yahoo.com

N. Rangaswamy Ph.D.
Professor & Chairman , Department of Economics, Bangalore University, Bangalore

Economics Department
Bangalore University

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Date: October 5, 2006
Paper ID. 393
Paper Title: VECM Model and Modeling International Tourism Demand in
Thailand

Authors:
Chukiat Chaiboonsri
Parsert Chaitip
N Rangaswomy

Dear Prof./Dr./Mr./Ms. Chukiat Chaiboonsri,


We are pleased to inform you that your paper has been reviewed by the review
panel and has been accepted for presentation at the APIEMS 2006 conference.
You may also receive comments and feedback from the reviewer. At least one
author should register by October 15, 2006. The paper with final corrections in
Microsoft Word file format should be submitted as soon as possible but no later
than October 31, 2006. The registration form is attached. We have received
over 450 abstracts from 26 countries and we are looking forward to an exciting
conference. Thank you for your participation and we are looking forward to
seeing you in Bangkok

.
Best Wishes,
Voratas Kachitvichyanukul
APIEMS 2006 Conference Program Chair

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A

Preface

I would like to thanks Dr. N. Rangaswamy, Professor & Chairman of the


Department of Economics at Bangalore University. He is both my professor
and adviser at Bangalore University for the period from 2005 to 2010. And I
would like to thanks ICCR scholarship (India government organization) that
gave funds to me for study a Ph.D.(Economics) at Bangalore University during
the same period. This working paper is a part of the study for my Ph.D. course
at Bangalore University and some part of this paper has been presented by me
in Thai conference namely both Applied Mathematics and Statistics
Conference 2006 at Long beach Garden Hotel and Spa, Muang Pattaya,
Pattaya Province, Thailand from 24-26 May 2006 and APIEMS 2006
Conference at AIT . The meeting was established by the Department of
Mathematics and Statistic Thammasat University, Statistic Researching
Organization, Data Management Organization, Bio-statistic Organization and
Statistical Association of Thailand. Furthermore my grateful thanks to my
father, my mother, my wife and my relative for their help and support in every
way. This working paper was edited by Macus Vigilante, lecturer at Payap
University, Chiang Mai . So I would like to thanks you and I hope that you can
help me on my next paper. Finally my special thanks to God because He
blesses me in every day when I walk with Him.

Chukiat Chaiboonsri
1/06/2006

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B

Contents

Page

Preface A
Contents B
Tables C
Abstract 1
1. Introduction 2
2. Research Aim and Objective 3
3. Study area in this research 3
4. The methodology and research Framework
4.1 The back ground concept of International Tourism Demand Model 4
4.2 Unit-Root Tests 6
4.2.1 DF-Test, ADF Test (1979) 6
4.2.2 Phillips-Perron Test (PP-Test:1987,1988) 7
4.2.3 The KPSS-Test (1992) 7
4.2.4 The DF-GLS Test (1996) 9
4.2.5 The ERS Point Optimal Test 9
4.2.6 The Ng and Perron (NP-test:2001) 11
4.3 Cointegration and Vector Error Correction Mechanism 12
5. The results of the research
5.1 The results of the Unit-Root Test 16
5.2 The results of the analysis of Modeling International 17
Tourism Demand in Thailand
5.2.1 The results of the analysis of Modeling 17
International Tourism Demand in
Thailand as in long-run from VAR Model
5.2.2 The results of the analysis of Modeling International 19
Tourism Demand in Thailand as in long-run
from VECM Model
5.2.3 The results of the analysis of Modeling International 21
Tourism Demand in Thailand as in Short-term dynamics
base on VECM Model
6. The conclusions of research and policy recommendations 23
Bibliography 26

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C
Tables

Page

1. Table 1: GDP of Thailand from 1997 to 2001 2


2. Table 2: No. of international tourists and revenue from tourists 2
of Thailand
3. Table 1.1: Results of Unit Root Test base on 6 test methods for all 16
variables
4. Table 1.2: Results of Unit Root Test base on 6 test methods for all 17
variables after first or second differencing
5. Table 1.3: Results of the long-run relationship in international 18
tourism demand of Thailand based on
the Johansen and Juselius (1990) methodology
(coefficients(β′) from VAR Model)
6. Table 1.4 : Results of the long-run relationship in international 20
tourism demand of Thailand base on
Johansen & Juselius (1990) methodology
(coefficients(β′) from VECM model)
7. Table 1.5 : Vector error correction estimates of modeling international 22
tourism demand in Thailand (short-term dynamics)
8. Table 1.6 : Results of the short-term dynamics in international 23
tourism demand of Thailand base on VECM model
(residual based diagnostic tests on VECM model)

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VECM Model and Modeling International Tourism
Demand in Thailand*

Chukiat Chaiboonsri,
Candidate in the Indian Government Ph.D. (Economics) program
at Bangalore University, 2005-2010.
chukiat1973@yahoo.com

Parsert Chaitip Ph.D.


Assoc, Prof. DR. in Faculty of Economics, Chiang Mai University, Chiang Mai .

N. Rangaswamy Ph.D.
Professor & Chairman , Department of Economics, Bangalore University, Bangalore

Abstract

This paper seeks short-term dynamics and long-run relationships between


international expenditure of tourists to Thailand with Economic variables such
as the number of international tourist arrivals, GDP, price of goods and
services, transportation costs, and exchange rate risk for the period 1997(Q1)-
2005(Q2). The cointegration techniques based on Johansen and Juselius (1990)
and VECM Model were used to find the long-run and short-term dynamic
relationships of the international tourist demand model in Thailand. The paper
used six full standard test methods for unit roots namely ADF-Test (1979), PP-
Test (1987,1988), KPSS-Test (1992), DF-GLS Test (1996), ERS Point Optimal
Test and Ng and Perron (2001). The VECM Model has not previously been
used to estimate tourism demand models in short-term dynamics. The long-run
results indicate that growth in income (GDP) and the number of international
tourist arrivals from Thailand’s major tourist source markets has both positive
and negative impacts on international expenditure on tourists in Thailand while
mostly both transportation cost and real exchange rate or exchange risk have a
negative impact on international expenditure of tourists arriving in Thailand.
The short-term dynamic results indicate that it was in some ways similar and
dissimilar to the results for the long-run. Mostly the findings are consistent with
economics theory and the implication of the model may be used for policy
making.

Keyword: Thailand; tourism demand; cointegration; VECM Model.

-------------------------------------
*
This paper has been presented by me namely APIEMS 2006 Conference at AIT Bangkok , Thailand

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1. Introduction
International tourism business entered an interesting period for many
countries in Asia between 1997-1998 (many Asian countries including
Thailand experienced an economic crisis during this time: Lim(2003)) . Since
1997, the Asian region has faced an economic crisis which was due to
Thailand's policy of liberalization of its international currency called BIBF in
1993 (Kriangsak, 1998). This policy resulted in a huge inflow of loans to
Thailand as follows: (1) 193.2 billion baht in 1992, (2) 253.4 billion baht in
1993, and (3) 202.4 billion baht in 1994. Most of these loans flowed into the
minor business sector such as the stock market and real estate leading to un-
productivity and unemployment. Thus, the balance of trade in Thailand was
continuous deficits because Thai products could not compete in the word
market (Bank of Thailand, 1994). In addition to this, Thailand applied an
international policy of fixing the value of its exchange rate which was
incongruent with the real value of the US dollar (Chukiat, 2003) which made
imports much greater than exports. This again contributed to continuous
deficits and an imbalance of trade. The imbalance of trade, unfeasible
international currency policy, inflow of capital to un-productive business
sectors, all contributed to the economic crisis in 1997. As a consequence,
Thailand took out a huge loan of 17.2 billion US dollars from the International
Monetary Fund (IMF) in the form of a Stand-by Arrangement to help its
economy. The crisis that stared in Thailand also affected its neighbors such as
the Philippines, Indonesia, Singapore and South Korea (Lim and McAleer,
2001). Another effect of the economic crisis in 1997 was a decrease in
Thailand's GDP from 1997 to 2001 as can be seen in the table below ( table 1.1).

Table 1. : GDP of Thailand from 1997 to 2001

Year GDP
(million baht)
1997 3,073,615
1998 2,749,684
1999 2,871,980
2000 3,008,662
2001 3,072,925
(Source: National Economic and social Development Board of Thailand)

Table 2. : No. of international tourists and Revenue from tourists of Thailand

Year No. of Tourists Revenue from Tourists


(millions) (million baht)
1997 7.22 220
1998 7.76 242
1999 8.58 253
2000 9.51 285
2001 10.06 299
(Source: Thailand’s Tourism Organization)

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Despite the economic crisis, however, the effect on the tourism industry of
Thailand was positive because of the increasing number of foreign tourists
coming to Thailand who brought in a lot of revenue to country(see table 1.2).
It is therefore concluded from this study that the international tourism industry
in Thailand was not affected by the economic crisis. For a long time now,
economists have tried to understand the international tourist consumer behavior
when travelling to various countries around the world through the demand
model. For example Barry and O’Hagan (1972): the demand of British tourists
travelling to Ireland; Jud, G.D. and Joseph, H. (1974): the demand of
international tourists going to Latin American; Uysal and Crompton (1984): the
demand of international tourists going to Turkey; Summary (1987): the demand
of intentional tourists going to Kenya; Kulendran, N. (1996): the demand of
international tourist going to Australia; Lim C. and M. McAleer (2000): the
demand of international tourists going to Australia; Durbarry (2002): the
demand of international tourists (French tourists) going to the UK, Spain and
Italy. As well as Paresh Kumar and Narayan (2004) and Resina Katafono and
Aruna Gounder (2004): the demand of international tourists going to Fiji.
Based on much literature and articles, the aim of this paper is to find out the
international tourist consumer behavior in coming to Thailand by demand
model during the period of 1997-2005. When understood, the results of this
consumer behavior will be useful in developing the international tourism
industry in Thailand.

2. Research Aim and Objective


This research project had the aims and objectives of finding out how may
factors affect the international tourist's expenditure when coming to Thailand in
both the long-run and short-run. In particular, this research used the VECM
Model for estimating the short-term dynamics because this method had not
previously been used to estimate tourism demand. And to uses the international
tourism demand function to explain the consumer behavior of international
tourist’s expenditure on arrival in Thailand.

3. Study Area in this research


The scope of this research was the period 1997(Q1) -2005(Q2) and most of
the data was secondary. For the analysis of international tourist demand for
Thailand, the following seven countries were chosen: Malaysia, China,
England, Germany, France, America and Canada. Most of these countries were
sources of significant tourism income to Thailand during this period (Source:
Thailand’s Tourism Organization). The variables used in this research were
economic variables such as the expenditure of international tourists in Thailand,
the number of international tourist arrivals in Thailand, the GDP of the
countries of origin of international tourists arriving in Thailand, the world price
of kerosene-type jet fuel, the relative price of Thailand with the country of
origin of international tourists caming to Thailand and both the real exchange

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rate and the exchange rate risk of Thailand with the country of origin of
tourists.

4. The methodology and research Framework


4.1 The background concept of International Tourism Demand
Model
The concept of theory has been used in international tourist demand
since 1950 but the estimation of international tourist demand by the
econometric method was first used by Artus (1972). After that a lot of research
on international tourist demand functions used the econometric method.
Researchers who used this method are Archer (1976), Crouch (1994), Walsh
(1996), Lim (1997), Inclair (1998), Lise & Tol (2002), McAleer (2001,2003),
and Resina & Aruna (2004). Growth in international tourism is closely aligned
to economic variables which at a microeconomic level influence the
consumer’s decision to undertake overseas travel. Empirical research on
international tourism demand has overwhelmingly been based on aggregate
time series data which permits estimation of income and price elasticity on
inbound tourism (See Lim (1997) and McAleer (2003)). A simple origin-
destination demand model for international tourism can be written as: (equation
number (1A))

Dt =f (Yt TCt Pt) -------------------------- (1A)

Defined

Dt = is a measure of travel demand at time t ;


Yt = is a measure of income of the tourist-generating or origin
country at time t ;
TCt = is a measure of transportation costs from the origin to
destination country at time t ;
Pt = is a measure of tourism price of goods and services at time t ;

And assume that (+ Yt), (-TCt), (- Pt) and explain that when income at
time t is increasing then the demand for international tourism is increasing
together. When a measure of transportation costs from the origin to destination
country at time t is increasing then the demand for international tourism is
decreasing. And when a measure of tourism price of goods and services is
increasing then the demand for international tourism is decreasing. And the
equation (1A) can be expressed in log-linear (or logarithmic) [equation number
(2A)] .

ln Dt = α + βln Yt + γln {F1t or F2t } + δln {RPt, ERt or RERt }


+ φln Dt -1 + θln CPt + u t ----------- (2A)

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where

ln Dt = logarithm of short-term quarterly tourist arrivals (or


demand) from the origin to destination country at time t ;
ln Yt = logarithm of real GDP in country of origin at time t ;
lnF1t = logarithm of real round-trip coach economy airfares in
Neutral Units of construction (NUC) between original
country and destination country at time t ;
lnF2t = logarithm of real round-trip coach economy airfares in
country of origin currency between country of origin and
destination country at time t ;
ln RPt = logarithm of relative prices (or CPI of destination country
/CPI of country of origin) at time t ;
lnERt = logarithm of exchange rate (country of origin per
destination country) at time t ;
lnRERt = logarithm of real exchange rate [or CPI (destination
country)/CPI (country of origin)*1/ER] at time t ;
ln CPt = logarithm of competitive prices [using CPI (destination
country) /(other destination country)]
u t = independently distributed random error term, with zero
mean and constant variance at time t ;

And defined that

α, β, γ, δ,φ,θ = parameters to be estimated; β > 0, γ < 0, δ < 0,


0<φ< 1, θ > 0 (Substitutes) and θ < 0(complements)

And this research or the “VECM model and Modeling International


Tourism Demand in Thailand ” modified from equation (2A) as well as can be
written as equation (3A) .

ln(Expdt) = λ + αln D1t + βln (GDPt) + γln (POt) + δln (RPt)


+ θln(RERt) + ρ(SDRt)+ u t ----------- (3A)

where

lnExptt = logarithm of expenditure of tourist arrivals from the country


of origin (each of the seven countries) to destination
country
(Thailand) at time t ;
ln D1t = logarithm of quarterly tourist arrivals from the country of
origin (each of the seven countries) to destination country
(Thailand) at time t ;
ln GDPt = logarithm of real GDP of the country of origin (each of the
seven countries) at time t ;

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lnPOt = logarithm of price of jet fuel at time t ;
ln RPt = logarithm of relative prices (or CPI of thedestination
country: (Thailand) /CPI of the country of origin:
(each of the seven countries) at time t ;
lnRERt = logarithm of real exchange rate [ or CPI(Thailand)
/CPI (each of the seven countries)*1/ER] at time t ;
SDRt = standard deviations of exchange rates
(country of origin (each of the seven countries) per
destination country (Thailand)) at time t ;
u t = independently distributed random error term, with
zero mean and constant variance at time t ;

And defined that

α, β, γ, δ,θ,ρ,λ = parameters to be estimated;


SDRt = exchange rate risk;
β > 0, γ < 0, δ < 0, θ< 0, ρ < 0, α > 0;

4.2 Unit-Root Tests


This research tested the stationarity of all variables used in the
International Tourism Demand Model by standard tests for unit roots. Such as
the ADF-Test (1979), PP-Test (1987,1988), KPSS-Test (1992), DF-GLS Test
(1996), the ERS Point Optimal Test and Ng and Perron (2001).

4.2.1 DF-Test, ADF Test (1979)


The DF-Test uses three equation for unit root test in Yt and Yt is time
series data.

DYt = αYt-1 + Ut --------- (1B) [ No Intercept Term ]


DYt = β t + αYt-1 + Ut ------- (2B) [ Intercept Term ]
DYt = β 1 + β t + αYt-1 + Ut -------- (3B) [ Intercept + Trend ]

Where

α = (ρ - 1) : null hypothesis is that α = (ρ - 1) = 0 (Non-stationary data (ρ


=1))

if α > Mackinnon statistics conclude that time series data is stationary


or I(d) = I(0) otherwise rejected null hypothesis is that α = (ρ - 1) = 0 or [ ρ = 1
] because if α has a statistics significance at any level then α ≠ 0 (ρ ≠ 1).
if α < Mackinnon statistics conclusion that time series data is non-
stationary or I(d) = I(d) as well as accepted null hypothesis is that α = (ρ - 1) =
0 or [ ρ = 1 ] because if α has not a statistics significance at any level then
α = 0 (ρ = 1).

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The ADF-Test was used for unit root test when found that higher order
autocorrelation in time series data. Before using the ADF-Test, dw should be
checked with statistics from DF-Test equation (2B) and (3B).

D Yt = β 1 + β t + αYt-1 + ßi Σmi=1∆Yt-i + ε t ------- (4B)

When added term (ßi Σmi=1∆Yt-i) in equation (4B) then t-statistics value of
α before Yt-1 to be change as well as all t-statistics value of them to be change
too. So ADF-Test corrects for higher order serial correlation by adding lagged
differenced terms on the right-hand side. The hypothesis test for unit root in
time series data by ADF-Test method as for the DF-test method and same
conclusion about time series data are stationary or non-stationary.

4.2.2 Phillips-Perron Test (PP-Test:1987,1988)


This test method for unit root was developed by Phillips and Perron
(1988) and they proposed a nonparametric method for controlling for higher-
order serial correlation in time series data.

D Yt = α + β t Yt-1 + ε t ------- (5B)

The PP-test makes a correction to the t-statistic of the γ coefficient from


the AR(1) regression to account for the serial correlation in equation (5B). The
correction is nonparametric since it uses an estimate of the spectrum of
equation (5B) at frequency zero that is robust to heteroskedasticity and
autocorrelation of unknown form.

γj = (1/ T) ΣTt= j + 1 ε* t ε* t- j --------- (6B)

W 2 = γ0 + 2 Σq j= 1 [ 1- j/(q+1) ] γj ------ (7B)

where

W 2 = Newey-west heteroskedasticity autocorrelation


consistent estimation
γj = coefficient from AR(1) in equation (5B)
ε* t ε* t- j = error term received from equation (5B)
q = floor(4 (T/100)2/9 ), [ q is the truncation lag ]

And the PP-Test (tpp) has a t-statistic is computed as equation (8B) as well
as where tb , sb are the t-statistics and standard error of (β t) received from
regress in equation (5B) and s* is the standard error received from regress in
same equation.

where

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PP-Test (tpp) =[(γ01/2 tb) / (W )]–[(W 2 - γ0 ) T sb / (2 W s*)] --(8B)

The asymptotic distribution of the PP-Test (tpp) is the same as the ADF-
Test. And the hypotheses to be tested are follow up:

H0 : null hypothesis as time series data is non-stationary


H1 : time series data is stationary

if PP-Test (tpp) > Mackinnon statistics conclusion that time series


data is stationary otherwise rejected the null hypothesis is that non-stationary
data.
if PP-Test (tpp) < Mackinnon statistics then conclude that time
series data is non-stationary as well as accepted null hypothesis.

4.2.3 The KPSS-Test (1992)


The KPSS-Test for unit root test was produced by Kwiatkowski, Phillips,
Schmidt and Shin (1992). And the KPSS statistic is based on the residuals from
the OLS regression of Yt on the exogenous variables X t (See equation (9B))
and X t is a random walk :Xt = Xt-1 + ε t .

Yt = Xt + ε t ------- (9B)
where
X t : Xt = a 0 + b0 t + ε t [ intercept and trend ]
X t : Xt = a 0 + ε t [ intercept ]
ε t : is a stationary random error
Yt : is data test stationary or non-stationary

Regress Yt on X t or regress Yt on a constant and a trend then obtain the


residual ε t from equation (9B) as well as take this residual to calculate in the
KPSS statistic (See equation (10B)).

KPSS = T-2 S S2t / (s2 (L)) ------- (10B)


where

T = is the sample size


St = Σti = 1 εi , t = 1,2,…., T
s2 (L) = T-1 ΣTt = 1 ε2t + 2 T-1 ΣLs = L w(S,L) ΣTt = s+1ε tε t- s
w(S,L) = is an optional weighting function corresponding to the
choice of a spectral window.
w(S,L) = 1- s / (L +1) in estimation (See Newey and west, 1987 :
and Kwiatkowski al.,1992, for more details).
L = the number of truncation (lags) is chosen

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The KPSS-test method test for unit root has the hypothesis to be tested are
H0 (null hypothesis) and H1 .

H0 : time series is stationary


H1 : time series is non-stationary

if KPSS-statistics > Quantities of distribution of KPSS statistics


table as rejected H0 or rejected null hypothesis and accepted H1 then conclusion
that Yt is non-stationary.
if KPSS-statistics < Quantities of distribution of KPSS statistics
table and accepted H0 or rejected H1 then conclusion that Yt is stationary.

4.2.4 The DF-GLS Test (1996)


This test suggested by Elliott, Rothenberg, Stock (1996) and the DF-GLS
Test is performed by testing the hypothesis a 0 = 0 (ρ =1, a 0 = (ρ - 1) in
equation (11B) to be start for this test (because PP-Test and ADF-Test have low
power for unit root test and conclude that tests for unit root need to be
developed (DeJong et al(1992)) as well as Madala and Kim (1998) suggested
that DF-GLS Test is a one method that higher power for unit root test).

D Yd t = a 0Yd t + a 1D Yd t-1 +….+ a pD Yd t-p + ε t ------- (11B)

Where Yd t is the locally de-trend series Y t and Yd t = Y t - B *0 - B *1t as


well as where (B *0 , B *1t) are obtained by regressing y* on z* . And where y*
= [ y1, (1- α*L)y2,…., (1- α*L)yT ] as well as z* = [ z1, (1- α*L)z2,…., (1-
α*L)zT ] .

Where
L = the lag operator
α* = 1+c*/ T , c* = -7 : in the model with drift, c* = 13.5 : in
the linear trend case
z* = (1,t)

Both DF-GLS and ADF-Test have non-stationary as null hypothesis and


to show below that :

H0 : a 0 = 0 : [time series data is non-stationary ]


H1 : a 0 ≠ 0 : [time series data is stationary ]

if a 0 > Critical values for the DF-GLS Test for a model with linear
trend (Elliott et al.1996) and rejected H0 or rejected null hypothesis as well as
conclusion that time series data is stationary or I(d) = I(0) .
if a 0 < Critical values for the DF-GLS Test for a model with linear
trend (Elliott et al.1996) and accepted H0 or accepted null hypothesis as well as
conclusion that time series data is non-stationary or I(d) = I(d) .

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4.2.5 The ERS Point Optimal Test
The ERS Point Optimal Test is based on quasi-differencing regression in
equation (12B). When a time series has an unknown mean or linear trend and
this method to start from equation (12B).

d(yt | a) = d(xt | a)/ δ (a) + ε t ------- (12B)

where

- d(yt | a) and d(xt | a) are quasi-differenced data for yt and xt


- ε t : error term that is independently and identically
distributed
- yt : is time series data are tested
- xt : contain a constant only or both a constant and time
trend
- δ (a) : the coefficient to be estimated in equation (12B)
- a : a* = 1-7/T when xt contains a constant
- a : a* = 1-13.5/T when xt contains a constant and
time trend

The P(T) statistics was used in ERS Point Optimal Test for unit root test in time
series data and show it below that : (See equation 12B)

P(T) statistics = ((SSR(a*)) – (a*)SSR(1)) / f0 ------ (13B)

where

SSR = the sum of squared residuals from equation (12B)


f0 = is a frequency zero spectrum estimation
or
f0 = ΣT-1j =-(T- 1) γ* (j) . k(j/t),
j = the j-th sample autocorvariance of the ε t
t = a truncation lag in the covariance weighting
γ* (j) = ΣTt = j+1(ε tε t- j)/ T, T = the number of observation
k = a kernel function (for detail see Eview 5.1 (2004))

and where

Bartlett : k(x) = [ 1-|x| if |x| < or = 1, 0 = otherwise ]


Parzen : k(x) = [1-6x2 +6|x|3 if 0 < or = |x| < or = (1/2)
2(1- |x|3) if (1/2) < |x| < or = 1
0 otherwise ]

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Quadratic spectral : k(x)

k(x) = 25/(12p2x2) * ([ sin (6px /5) / (6 px / 5)]


- cos(6 px / 5))

The null hypothesis of ERS Point Optimal Test for unit root test in time
series data can show below that :

H0 : α = 1 : [ time series data is non-stationary ]


H1 : α = a*: [ time series data is stationary ]

if P(T) statistics > Critical values for ERS test statistic are
computed by interpolating the simulation result provided by ERS (1996,table
1,p.825) for T = {50, 100, 200, ∞} then accepted H0 : α = 1 : [ time
series data is non-stationary ] and said that time series data is non-stationary.
if P(T) statistics < Critical values for ERS test statistic are computed
by interpolating the simulation result provided by ERS (1996,table 1,p.825) for
T = {50, 100, 200, ∞} then accepted H1 : α = a*: [ time series data is
stationary ] and said that time series data is stationary (perception : the ERS –
Test was used to test unit root for time series data have big simple size at least
more than 50 observations).

4.2.6 The Ng and Perron (NP-test:2001)


Ng and Perron(2001) developed from four test statistics based on the
GLS detrended data Yd t and these test statistics are modified forms of Philips
and Perron Za and Zt statistics, Bhargava(1986) R1 statistic and the ERS Point
Optimal statistic. This method to start by first define term follow that : (See
equation 14B).

K = ΣTt = 2 (Yd t-1)2 / T2 ----------- (14B)

And modified statistics of Ng and Perron(2001) be written as, (four


statistics were used to test for unit root in time series data : MZda, MZdt, MSBd
and MPdt).

where

MZda = (T-1 (Yd t)2 - f0) / (2k)


MZdt = MZda . MSBd
MSBd = (k / f0)1/2
and

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MPdt = { (c*2 k – c*T-1(Yd t)2) / f0 if xt = 1 or z* = 1,
(c*2 k + (1-c*)T-1(Yd t)2) / f0 if xt = (1,t) or z* = (1,t) }
where

c* = { -7 if xt = 1 or z* = 1, -13.5 if xt = (1,t) or
z* = (1,t) }
f0 = ΣT-1j =-(T- 1) γ* (j) . k(j/t),
j = the j-th sample autocorvariance of the ε t
t = a truncation lag in the covariance weighting
γ (j) = ΣTt = j+1(ε tε t- j)/ T, T = the number of observation
*

or
f0 = kernel- based sum-of-covariance estimator, and
autoregressive spectral density estimators
The null hypothesis of Ng and Perron(2001) Test for unit root test in time
series data can show below that :

H0 : is time series data is non-stationary


H1 : is time series data is stationary

if MZda, MZdt, MSBd,MPdt statistics > Critical values


of Ng and Perron((2001),table 1) then accepted H0 : [ time series data is
non-stationary ] and said that time series data is non-stationary.
if MZda, MZdt, MSBd,MPdt statistics < Critical values
of Ng and Perron((2001),table 1) then rejected H0 : [ time series data is
non-stationary ] one other hand accepted H1 : [ time series data is stationary ]
and said that time series data is stationary.

4.3 Cointegration and Vector Error Correction Mechanism (VECM


model)
Engle and Granger (1987) pointed out that a linear combination of two
variables or more variables are nonstaionary series may be stationary. If such a
stationary, or I(0), linear combination exists, the stationary linear combination
is called the cointegratting equation and may be interpreted as long-run
equilibrium relationship between equation. The problems with Engle-Granger
two step procedure in co-integration approach. For example if assumed that
Economic theory can guide in determining the dependent and the independent
variable, like in the consumption function (equation number (1C)).

Ct = α0 + α1Yt + ut ------------- (1C)

But if equation (1C) has three variables (Y, W, Z) then these are three
possible long run relationships then can show equation numbers (2C), (3C) and
(4C).

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Yt = α0 + α1Wt + α2Zt + ut -------------- (2C)
Zt = β0 + β1Yt + β2Wt + ut -------------- (3C)
Wt = γ0 + γ1Wt + γ2Zt + ut -------------- (4C)

So that the co-integration approach of EG can not do it in more than two


variables and these weaknesses limit applicability of the this approach. To
introduce a technique that consider co-integration not only between pairs of
variables, but also in a system this technique is the ML approach of Johansen
and Juselius (1990). The Johansen and Juselius approach start at model Zt
unrestricted vector auto-regression (VAR) involving up to K-lags of Zt
:(equation number (5C))

Zt = A1 Zt-1 + …… + Ak Zt-k + ut , ut ~IN(0,Σ) ------------- (5C)

Where Zt is (n X 1) and each of the Ai is an (n x n) matrix of parameters.


Equation (5C) has been expressed in first differenced form and it is convenient
to rewrite the equation (5C) to be (6C) as well as described below.

∆Zt = Γ1 ∆Zt-1 + …… + Γk-1∆Zt-k+1 + ΠZt-k + ut -- (6C)

where

Γi = -(I - A1 - …. - Ai), (i = 1,…,k-1)


Π = -(I - A1 - …. - Ai)
Π = αβ′ and α is adjustment coefficients of disequilibrium
and β is Co-integrating vectors(and αβ ′ to be found).

This way of specifying the system contains information on both the short-
and long-run adjustment to changes in Zt (∆Zt) and rewriting (6C) as :
(equation number (7C)).

∆Zt + ΠZt-k = Γ1 ∆Zt-1 + …… + Γk-1∆Zt-k+1 + ut ----- (7C)

It is possible to correct for short-run dynamics by regressing ∆Zt and Zt-k


separately on the right-hand side of (7C) . That is, the vectors R 0 t and R k t are
obtained from :(equation number (8C) and number (9C))

∆Zt = P1 ∆Zt-1 + …… + Pk-1∆Zt-k+1 + R0t --- (8C)


Zt-k = T1 ∆Zt-1 + …… + Tk-1∆Zt-k+1 + Rkt ---- (9C)

Which can then be used to form residual (product moment) matrices


:(equation number (10C))

Sij = T1 ΣTi=1 R it R/ jt ,(i,j = 0,k) -------------------- (10C)

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The maximum likelihood estimate of β is obtained as the eigenvectors
corresponding to the r largest eigenvalues from solving the number (11C).

 λ Sjj - Sji Sii-1 Sij = 0 -------------------- (11C)

Which gives the n eigenvalues λ^1> λ^2 >…….> λ^n and the
corresponding eigenvectors ν^ = (ν^1 >,…….,> ν^n). Those r elements in ν^
which determine the linear combinations of stationary relationships can be
denoted β ^ =(ν^1 >,…….,> ν^r), that is, these are the cointegration vectors. The
VECM model has been develop by Hendry (1995) and he used the Johansen-
Juselius (JJ) methodology to study long-run relationship among M1, the price
level, output and interest rate in Canada. The VECM modelling procedure form
can be written and it begins by defining an unrestricted vector autoregression
(VAR) involving up to k-lags as well as can show below that : (See equation
(12C))

Zt = A1Zt-1 +…+ A kZt-k + ε1 ------- (12C)

And can be written in form of vector autoregressive in difference and error


correction components as follow equation (13C) as well as this equation was
called that VECM models.

∆Zt = C +Γ1∆Zt-1 +…+ Γk-t∆Zt-k+1 + Π Zt-k + ε1 ----- (13C)

where

Zt = variables were used in the VECM models


∆Zt = difference term of variables were used in the VECM models
Γj∆Zt-j = the vector autoregressive(VAR) component in first
difference
Π Zt-p = error-correction components
C = vector of constant is an (n x 1)
ε1 = vector of white noise error terms
Γj = an (n x n) matrix for short term adjustment coefficients
among variables with k-1 number of lags
Π = αβ′ (the value of αβ′ to be found), Π = an (n x n) matrix

where

α = an (n x r) matrix which represents the speed of


adjustment coefficient of the error correction
mechanism.
β′ = an (n x r) matrix of cointegrating vectors
represents up to r cointegrating relationship in the

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multivariate model which represent long-run
steady solutions.

The simply of VECM model can rewrite based on concept of this research
follow by equation (14C) and this equation described below.

∆Xt = +Γ(L)∆Xt + DZt + Π Xt-1 + ε1 ----- (14C)


∆Xt = +Γ(L)∆Xt + DZt + αβ′ Xt-1 + ε1 ----- (15C)

where

Xt = [ all variables were used in model ]


∆Xt = [ differencing in all variables were used in model]
Zt = [constant term, dummies variable and other variables ]
Γ(L) = Matrix of parameters for n order lags process
ε1 = error term of equation
Π = αβ′ [ to be found ] and where
α = speed of adjustment to equilibrium
β′ = cointegrating vector in long-run

And define that

Xt= [ln(Expdt), ln(D1t), ln(GDPt), ln(POt),


ln(RPt), ln(RERt), (SDRt)]′
∆Xt = [∆ln(Expdt), ∆ln(D1t), ∆ln(GDPt), ∆ln(POt), ∆ln(RPt),
∆ln(RERt), ∆(SDRt)]′

The simply of VECM model can rewrite based on concept of this research
follow by equation (16C) again and this equation described below.

∆ln(Expdt) ∆ln(Expdt)
∆ln(D1t) ∆ln(D1t)
∆ln(GDPt) ∆ln(GDPt)
∆ln(POt) = + Γ(L) ∆ln(POt) DZt + αβ′ Xt-1 + ε1 ----- (16C)
∆ln(RPt) ∆ln(RPt)
∆ln(RERt) ∆ln(RERt)
∆(SDRt) ∆(SDRt)

where

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DZt = [constant term ]
Γ(L) = Matrix of parameters for n order lags process
ε1 = error term of equation
Π = αβ′ [ to be found and where
α = speed of adjustment to equilibrium
β′ = cointegrating vector in long-run

And the simply of VECM model in short–term dynamics was used in this
research can be rewrite as equation (17C) as well as descried below.

∆ln(Expdt) ∆ln(Expdt)
∆ln(D1t) ∆ln(D1t)
∆ln(GDPt) ∆ln(GDPt)
∆ln(POt) = + Γ(L) ∆ln(POt) + DZt + λα + ε1 ----- (17C)
∆ln(RPt) ∆ln(RPt)
∆ln(RERt) ∆ln(RERt)
∆(SDRt) ∆(SDRt)

where

DZt = [constant term ]


Γ(L) = Matrix of parameters for n order lags process
ε1 = error term of equation
α = speed of adjustment to equilibrium
λ = coefficient of speed of adjustment to equilibrium

5. The results of research


5.1 The results of Unit-Root Test
This paper determined the order of integration of the variables by 6
standard methods test for unit root - ADF-Test (1979), PP-Test (1987,1988),
KPSS-Test (1992), DF-GLS Test (1996), ERS Point Optimal Test and Ng &
Perron (2001). And if variable are integrated of the same order than apply the
Johansen-Juselius (1990) maximum likelihood method of obtain the number of
cointegrating vector(S) for long-run and use VECM model for short-term
dynamics. The results of the unit root tests based on 6 standard methods are
shown in table 1.1. All variables were used in international tourism demand
model of Thailand were integrated of order (d) except that both the GDP of
Malaysia and the RER of China were integrated to the order (0).

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Table 1.1: Results of Unit Root Test base on 6 test methods for all
variables

variables Malaysia China England German France America Canada


Expd I(d) I(d) I(d) I(d) I(d) I(d) I(d)
D1 I(d) I(d) I(d) I(d) I(d) I(d) I(d)
GDP I(0) I(d) I(d) I(d) I(d) I(d) I(d)
Po I(d) I(d) I(d) I(d) I(d) I(d) I(d)
RP I(d) I(d) I(d) I(d) I(d) I(d) I(d)
RER I(d) I(0) I(d) I(d) I(d) I(d) I(d)
SDR I(d) I(d) I(d) I(d) I(d) I(d) I(d)
From: computation

And when first differencing or second differencing in all variables (except


both GDP of Malaysia and RER of China) were used in this model as well as
the order of integrated in all variables changed. The results of unit root test
based on 6 methods after first differencing or second differencing are shown in
table1.2.
Table 1.2: Results of Unit Root Test base on 6 test methods for all
variables after first or second differencing

variables Malaysia China England German France America Canada


Expd I(1) I(1) I(1) I(1) I(1) I(1) I(1)
D1 I(1) I(1) I(1) I(1) I(1) I(1) I(1)
GDP I(0) I(1) I(1) I(1) I(1) I(1) I(1)
Po I(1) I(1) I(1) I(1) I(1) I(1) I(1)
RP I(1) I(2) I(1) I(2) I(2) I(2) I(2)
RER I(1) I(0) I(1) I(1) I(1) I(1) I(1)
SDR I(1) I(1) I(1) I(1) I(1) I(1) I(1)

From : computed

After first differencing or second differencing in all variables were used in


international tourism demand model of Thailand were integrated of order (1)
except the RP of China, the RP German, the RP of France, the RP of America
and the RP of Canada were integrated of order (2).

5.2 The results of the analysis of Modeling International Tourism Demand


in Thailand
5.2.1 The results of the analysis of Modeling International Tourism
Demand in Thailand as in long-run from VAR Model
Estimates of long-run cointegrating vectors of modeling
international tourism demand in Thailand are given in table 1.3 and this method
was based on Johansen and Juselius (1990) as well as the method derived from
VAR model concept. In Malaysia as the long-run cointegrating vectors
suggested, ln(RPt) has a positive impact on international tourist expenditure in
Thailand or impact on tourism demand in Thailand except ln(Dt-1), ln(POt),

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ln(RERt) and ln(SDRt) have a negative impact on this model. The results imply
that in long-run when ln(RPt) increases 1% then Malaysia’s tourists spending
on goods and services in Thailand increases by 19.38%. Otherwise when ln(Dt-
1), ln(POt), ln(RERt) and ln(SDRt) increase by 1% then Malaysian tourist
spending on goods and services in Thailand decreases by 1.71%, 0.68%, 3.75%
and 0.43%. In China as long-run cointegrating vectors suggested, ln(Dt-1),
ln(GDPt) and ln(SDRt) have a positive impact on international tourist’s
expenditure in Thailand or impact on tourism demand in Thailand. Otherwise
both ln(POt) and ln(RERt) have negative impacts on this model. The results
imply that in the long-run when ln(Dt-1), ln(GDPt) and ln(SDRt) increase by 1%
then Chinese tourists spending on goods and services in Thailand increases by
5.82%, 8.61% and 10.75%. Otherwise when both ln(POt) and ln(RERt) increase
by 1% then Chinese tourist spending on goods and services in Thailand
decreases by 2.63% and 16.72%.

Table 1.3: Results of the long-run relationship in international tourism demand


of Thailand based on the Johansen and Juselius (1990)
methodology
(coefficients(β′) from VAR Model).

Country Ln(Dt-1) Ln(GDPt) Ln(POt) Ln(RPt) Ln(RERt) Ln(SDRt)


Malaysia -1.71 - -0.68 19.38 -3.75 -0.43
China 5.82 8.61 -2.63 - -16.72 10.75
England -6.14 6.02 -0.15 -3.83 -3.19 -0.13
German -3.96 -0.02 0.08 - -0.12 -0.32
France -5.34 6.86 -1.17 - 0.17 -0.55
America 3.14 -0.81 -0.42 - 2.14 0.33
Canada -59.35 104.44 -4.60 - 22.17 -1.94
From : computation

In England as the long-run cointegrating vectors suggested, ln(Dt-1),


ln(POt), ln(RPt), ln(RERt) and ln(SDRt) have a negative impact on international
tourist expenditure in Thailand or impact on tourism demand in Thailand.
Otherwise ln(GDPt) has a positive impact on this model. The results imply that
in the long-run when ln(Dt-1), ln(POt), ln(RPt), ln(RERt) and ln(SDRt) increase
by 1% then English tourists spending on goods and services in Thailand
decreases by 6.14%, 0.15%, 3.83%, 3.19% and 0.13%. Otherwise when
ln(GDPt) increases by 1% then English tourist spending on goods and services
in Thailand increases by 6.02%. In Germany as long-run cointegrating vectors
suggested, ln(Dt-1), ln(GDPt), ln(RERt) and ln(SDRt) have negative impacts on
international tourist expenditure in Thailand or impact on international tourism
demand model. Otherwise ln(POt) has a positive impact on this model. The
results imply that in long-run when ln(Dt-1), ln(GDPt), ln(RERt) and ln(SDRt)
increase by 1% then German tourist spending on goods and services in
Thailand decreasing 3.96%, 0.02%, 0.12% and 0.32%. Otherwise when

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ln(POt) increases by 1% then German tourist spending on goods and services in
Thailand increases by 0.08%. In France, as the long-run cointegrating vectors
suggested, ln(Dt-1), ln(POt), and ln(SDRt) have negative impacts on
international tourist expenditure in Thailand or impact on the international
tourism demand model. Otherwise both ln(GDPt) and ln(RERt) have positive
impacts on this model. The results imply that in the long-run when ln(Dt-1),
ln(POt), and ln(SDRt) increase by 1% then French tourist spending on goods
and services in Thailand decreases by 5.34%, 1.17% and 0.55%. Otherwise
when both ln(GDPt) and ln(RERt) increase by 1% French tourist spending on
goods and services in Thailand increases by 6.86% and 0.17%. In America as
the long-run cointegrating vectors suggested, ln(Dt-1), ln(RERt), ln(SDRt) have
positive impacts on international tourist expenditure in Thailand or impact on
the international tourism demand model. Otherwise both ln(GDPt) and ln(POt)
have negative impacts on this model. The results imply that in the long-run
when ln(Dt-1), ln(RERt), ln(SDRt) increase by 1% then American tourist
spending on goods and services in Thailand increases by 3.14%, 2.14% and
0.33%. Otherwise when both ln(GDPt) and ln(POt) increases by 1% then
American tourist spending on goods and services in Thailand decreases 0.81%
and 0.42%. And finally for Canada, as the long-run cointegrating vectors
suggested, ln(Dt-1), ln(POt), and ln(SDRt) have a negative impact on
international tourist expenditure in Thailand or impact on the international
tourist demand model. Otherwise both ln(GDPt) and ln(RERt) have positive
impacts on this model. The results imply that in long-run when ln(Dt-1), ln(POt),
and ln(SDRt) increase by 1% then Canadian tourist spending on goods and
services in Thailand decreases by 59.35%, 4.60% and 1.94%. Otherwise when
both ln(GDPt) and ln(RERt) increase by 1% then Canadian tourist spending on
goods and services in Thailand increases by 104.44% and 22.17%.

5.2.2 The results of the analysis of Modeling International Tourism


Demand
in Thailand as in long-run from VECM Model
Estimates of long-run cointegrating vectors of modeling international
tourism demand in Thailand are given in table 1.4 and this method was based
on Johansen and Juselius (1990) as well as the method derived from the VECM
model concept. In Malaysia as the long-run cointegrating vectors suggested,
ln(RPt-1) has a positive impact on international tourism expenditure in Thailand
or impact on tourism demand in Thailand, but ln(Dt-1), ln(POt-1), ln(RERt-1) and
ln(SDRt-1) have a negative impact on this model. The results imply that in the
long-run when ln(RPt-1) increase by 1% then Malaysian tourist spending on
goods and services in Thailand increases by 31.19%. Otherwise when ln(Dt-1),
ln(POt-1), ln(RERt-1) and ln(SDRt-1) increase by 1% then Malaysian tourist
spending on goods and services in Thailand decreases by 2.04%, 0.97%, 5.72%
and 1.40%. In China, as the long-run cointegrating vectors suggested, ln(GDPt-
1) has a positive impact on international tourist expenditure in Thailand or
impact on tourist demand in Thailand. Otherwise ln(Dt-1), ln(POt-1) and
ln(SDRt-1) have a negative impact on this model. The results imply that in the

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long-run when ln(GDPt-1) increase by 1% then Chinese tourist spending on
goods and services in Thailand increases by 0.97%. Otherwise when ln(Dt-1),
ln(POt-1) and ln(SDRt-1) increase by 1% then Chinese tourist spending on goods
and services in Thailand decreases by 1.07%, 0.26% and 0.46%. In England as
the long-run cointegrating vectors suggested, ln(Dt-1), ln(POt-1), ln(RPt-1),
ln(RERt-1) and ln(SDRt-1) have negative impacts on international tourist
expenditure in Thailand or impact on the tourisms demand in Thailand.
Otherwise ln(GDPt-1) has a positive impact on this model. The results imply
that in the long-run when ln(Dt-1), ln(POt-1), ln(RPt-1), ln(RERt-1) and ln(SDRt-1)
increase by 1% then English tourist spending on goods and services in Thailand
decreases by 5.07%, 0.53%, 1.90%, 3.53% and 0.09%. Otherwise when
ln(GDPt-1) increases by 1% then English tourist spending on goods and services
in Thailand increases by 6.45%.

Table 1.4 : Results of the long-run relationship in international tourism demand


of Thailand base on Johansen & Juselius (1990) methodology
(coefficients(β′) from VECM model).
From : computation
Variables Malaysia China England German France America Canada
ln(Expdt-1) 1.00 1.00 1.00 1.00 1.00 1.00 1.00
ln(Dt-1) -2.04*** -1.07*** -5.07*** -2.01*** 2.27*** 0.31 18.35***
(-9.39) (-8.32) (-33.01) (-25.67) (5.27) (1.65) (7.06)
ln(GDPt-1) - 0.97*** 6.45*** 1.96*** 1.11 1.80*** -77.04***
(9.14) (34.97) (3.87) (0.94) (4.63) (-8.25)
ln(POt-1) -0.97*** -0.26*** -0.53*** -0.10*** -0.35*** -0.28*** 2.43***
(-10.95) (-3.05) (-24.30) (-3.11) (-2.18) (-2.80) (2.03)
ln(RPt-1) 31.19*** - -1.90*** - - - -
(6.36) (-5.07)
ln(RERt-1) -5.72*** 0.38 -3.53*** 0.24*** 0.40*** 3.14*** -52.12***
(-8.71) (1.22) (-30.86) (5.68) (5.00) (12.76) (-6.01)
ln(SDRt-1) -1.40*** -0.46** -0.09*** -0.17*** 1.00*** -0.03 -2.49***
(-2.80) (-1.92) (-14.73) (-9.93) (8.28) (-1.57) (-2.93)
C -7.21 -18.12 -18.27 -10.99 -49.27 -27.14 173.25
Figures in parenthesis are t-statistics (*** = Sig. at 99%, **= Sig. at 95%, * =Sig. at 90%).

In Germany, as the long-run cointegrating vectors suggested, ln(Dt-1),


ln(POt-1) and ln(SDRt-1) have a negative impact on international tourist
expenditure in Thailand or impact on the international tourism demand model.
Otherwise both ln(GDPt-1) and ln(RERt-1) have positive impacts on this model.
The results imply that in long-run when ln(Dt-1), ln(POt-1) and ln(SDRt-1)
increase by 1% then German tourist spending on goods and services in
Thailand decreases by 2.01%, 0.10% and 0.17%. Otherwise when both
ln(GDPt-1) and ln(RERt-1) increasing 1% then German tourist spending on
goods and services in Thailand increases by 1.96% and 0.24%. In France as the
long-run cointegrating vectors suggested, ln(Dt-1), ln(RERt-1) and ln(SDRt-1)
have positive impacts on international tourist expenditure in Thailand or impact
on the international tourism demand model. Otherwise ln(POt-1) has a negative

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impact on this model. The results imply that in the long-run when ln(Dt-1),
ln(RERt-1) and ln(SDRt-1) increases by 1% then French tourist spending on
goods and services in Thailand increases by 2.27%, 0.40% and 1.00%.
Otherwise when ln(POt-1) increases by 1% then French tourist spending on
goods and services in Thailand decreases by 0.35%. In America, as the long-
run cointegrating vectors suggested, both ln(GDPt-1) and ln(RERt-1) have
positive impacts on international tourist expenditure in Thailand or impact on
the international tourism demand model. Otherwise ln(POt-1) has a negative
impact on this model. The results imply that in long-run when both ln(GDPt-1)
and ln(RERt-1) increases 1% then Americatourist spending on goods and
services in Thailand increases by 1.80% and 3.14%. Otherwise when ln(POt-1)
increase by 1% then American tourist spending on goods and services in
Thailand decreases by 0.28%. And for Canada, as the long-run cointegrating
vectors suggested, both ln(Dt-1) and ln(POt-1) have positive impacts on
international tourist expenditure in Thailand or impact on the international
tourisms demand model. Otherwise ln(GDPt-1), ln(RERt) and SDRt have
negative impacts on this model.The results imply that in long-run when both
ln(Dt-1) and ln(POt-1) increase by 1% then Canadian tourist spending on goods
and services in Thailand increases 18.35% and 2.43%. Otherwise when
ln(GDPt-1), ln(RERt-1) and SDRt-1 increase by 1%, Canadian tourist spending on
goods and services in Thailand decreases by 77.04%, 52.12% and 2.49%.

5.2.3 The results of the analysis of Modeling International Tourism Demand in


Thailand as in Short-term dynamics base on VECM model
Estimates of short-term dynamics base on VECM model are given in
table 1.5 and the method is based on Johansen and Juselius (1990) as well as
the method derived from VECM model concept. The results of short-term
dynamics indicate that D(lnD1(-2)) has a negative impact on international
tourist spending on goods and services in Thailand. The results imply that when
D(lnD1(-2)) of both America and Canada increases by 1% then American and
Canadian tourist spending on goods and services in Thailand decreases by
0.87% and 0.51%. The results of short-term dynamics indicate that D(lnPO(-1))
has a negative impact on international tourist spending on goods and services in
Thailand. The results imply that when D(lnPO(-1)) increases by 1% then
Malaysian tourist spending on goods and services in Thailand decreases by
1.26%. The results of short-term dynamics indicate that D(lnPO(-2)) has a
positive impact on international tourist spending on goods and services in
Thailand. The results imply that when D(lnPO(-2)) increase by 1% then
English tourist spending on goods and services in Thailand increases by 1.36%.
The results of short-term dynamics indicate that D(lnRP(-1)) has a negative
impact on international tourist spending on goods and services in Thailand. The
results imply that when D(lnRP(-1)) of Thailand increases by 1% then Chinese
tourist spending on goods and services in Thailand decreases by 1.46%. The
results of short-term dynamics indicate that D(lnRP(-2)) has a positive impact
on international tourist spending on goods and services in Thailand. The results
imply that when D(lnRP(-2)) of Thailand increases by 1% then Canadian

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tourist spending on goods and services in Thailand increases by 0.59%. The
results of short-term dynamics indicate that D(lnRER(-1)) has a positive impact
on international tourist spending on goods and services in Thailand.

Table 1.5 : Vector error correction estimates of modeling international


tourism demand in Thailand (short-term dynamics)
from :computed
Independent
Variables. Malaysia China England Germany France America Canada
α -0.503902 0.177159 0.309506** 1.203675* -0.528811** -0.608663** 0.003052
[-1.50568] [ 0.49380] [ 2.05065] [ 1.69457] [-2.01291] [-3.13838] [ 0.16009]
D(lnEXPD(-1)) -0.828076 0.110635 -0.307244 -0.308411 0.450043 0.489743 0.288242
[-1.17236] [ 0.08853] [-0.59252] [-0.29577] [ 0.58410] [ 1.32038] [ 0.84574]
D(lnEXPD(-2)) -0.556369 0.904250 -0.418149 0.396109 0.430390 0.355316 -0.494428
[-0.69160] [ 0.66984] [-0.81342] [ 0.35483] [ 0.51886] [ 0.96650] [-1.46423]
D(lnD1(-1)) 0.197669 -0.528634 0.964221 0.853267 0.321948 -0.214974 -0.349500
[ 0.28860] [-0.42086] [ 1.25351] [ 0.75856] [ 0.42000] [-0.55447] [-0.88466]
D(lnD1(-2)) 0.032269 -1.227923 0.070685 -0.700421 -0.486778 -0.873254** -0.512076*
[ 0.04553] [-0.90885] [ 0.09372] [-0.61896] [-0.58973] [-2.03963] [-1.60876]
D(lnPO(-1)) -1.263397* 0.065606 -0.261088 3.709406 3.252647 -5.394827 -1.820633
[-1.64247] [ 0.25960] [-0.32795] [ 0.32529] [ 0.51810] [-0.89653] [-0.38619]
D(lnPO(-2)) -0.547236 -0.001507 1.367009* 2.512136 1.600757 7.711938 3.713633
[-0.74783] [-0.00936] [ 1.86334] [ 0.21063] [ 0.24211] [ 1.28186] [ 0.64641]
D(lnRP(-1)) 11.94895 -1.463862** -0.004026 -0.073429 -0.387423 0.203022 -0.402430
[ 1.58516] [-2.28923] [-0.02315] [-0.15829] [-0.71947] [ 0.67736] [-1.12213]
D(lnRP(-2)) 12.40594 0.077742 0.088525 0.198464 0.577519 0.331117 0.599232*
[ 0.91885] [ 0.11450] [ 0.59344] [ 0.45751] [ 1.05318] [ 1.55740] [ 1.75046]
D(lnRER(-1)) -0.321530 -0.046788 2.305174 -0.141628 0.068781 1.239615* -0.793095
[-0.29249] [-0.07120] [ 0.70197] [-0.36247] [ 0.34376] [ 1.65458] [-0.99916]
D(lnRER(-2)) 0.553619 -0.219445 2.964084 -0.315900 0.181220 2.516507** 0.623563
[ 0.50009] [-0.32788] [ 0.88631] [-0.80100] [ 0.99065] [ 2.65153] [ 0.71973]
D(SDR(-1)) 0.007743 -0.248730 0.721391 0.100910 0.200690 0.061303* -0.090122
[ 0.01717] [-0.44762] [ 1.32857] [ 1.14271] [ 0.89539] [ 1.65205] [-1.15888]
D(SDR(-2)) -0.292970 0.143460 1.109990** 0.023297 0.054513 0.043176 0.031681
[-0.70150] [ 0.26668] [ 2.28353] [ 0.29196] [ 0.24468] [ 1.02261] [ 0.40065]
C 0.077968 0.061153 0.028771 -0.051234 -0.067775 0.030638 0.009392
[ 1.50114] [ 0.83523] [ 1.44193] [-0.53762] [-0.53545] [ 0.29972] [ 0.11661]
R-squared 0.427726 0.548354 0.893671 0.861416 0.633095 0.814481 0.922119
Adj. R-squared -0.009895 0.202978 0.787342 0.755440 0.352520 0.672614 0.862564
Sum sq. resids 0.841690 2.487204 0.118490 0.946312 1.609321 0.316707 0.341876
S.E. equation 0.222511 0.382500 0.088878 0.235935 0.307678 0.136491 0.141811
F-statistic 0.977390 1.587699 8.404763 8.128403 2.256423 5.741155 15.48330
Log likelihood 11.91103 -4.883262 42.30001 10.09504 1.864616 27.06128 25.87595
Akaike AIC 0.134773 1.218275 -1.696775 0.251933 0.782928 -0.842663 -0.766191
Schwarz SC 0.782380 1.865882 -0.956652 0.899540 1.430535 -0.195056 -0.118583
Mean dependent 0.019403 0.014946 0.027269 0.014747 -0.013304 0.012481 0.021047
S.D. dependent 0.221418 0.428446 0.192733 0.477090 0.382370 0.238547 0.382525
Figures in parenthesis are t-statistics (** = Sig. at 95%, *= Sig. at 90%).

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The percent levels are 2.0 and 1.6 respectively.

The results imply that when D(lnRER(-1)) of Thailand with the America
dollar increase by 1% then American tourist spending on goods and services in
Thailand increases by 1.23%. The results of short-term dynamics indicate that
D(lnRER(-2)) has a positive impact on international tourist spending on goods
and services in Thailand. The results imply that when D(lnRER(-2)) of
Thailand with the America dollar increase by 1% then American tourist
spending on goods and services in Thailand increase by 2.51%. And finally, the
results of short-term dynamics indicate that D(SDR(-1)) has a positive impact
on international tourist spending on goods and services in Thailand. The results
imply that when the D(SDR(-1)) of Thailand with America dollar increases by
1% then American spending on goods and services in Thailand increases by
0.06%. Furthermore, the results of short-term dynamics indicate that D(SDR(-
2)) has a positive impact on international tourist spending on goods and
services in Thailand. The results imply that when D(SDR(-1)) of Thailand with
the pound sterling increases by 1% then English tourist spending on goods and
services in Thailand increases by 1.10%.

Table 1.6 : Results of the short-term dynamics in international tourism demand


of Thailand base on VECM model (residual based diagnostic tests
on
VECM model).

From : computed
Diagnostic Test Malaysia China England Germany France America Canada
Autocorrelation
Test 40.47 35.13 35.81 40.37 37.63 38.33 33.42
LM(12) (0.27) (0.50) (0.92) (0.28) (0.39) (0.36) (0.56)
(P-value)
Normality Test
JB -Test 3.04 3.63 3.38 2.45 2.70 3.03 3.26
(P-value) (0.21) (0.16) (0.18) (0.24) (0.25) (0.21) (0.19)
Hetero
White –Test 554.56 542.50 - 552.38 555.03 554.25 550.97
(P-value) (0.39) (0.53) (0.41) (0.38) (0.39) (0.43)

Furthermore this paper applied a number of diagnostic tests to the error


correction model (See table 1.6). The models pass the Jarque-Bera normality
test, suggesting that the errors are normally distributed. There is no evidence of
autocorrelation in the disturbance of the error term (See value of L.M.-test in
the same table). The RESET test indicates that the every model is correctly
specified. The White-test suggest that the error is homoskedastic (except
England).

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6. Conclusions and policy recommendations
This paper was motivated by the need for an empirical analysis of the
determinants of international tourist expenditure in Thailand from its seven
main source markets, Malaysia, China, England, Germany, France, America
and Canada. The cointegration techniques based on Johansen and Juselius
(1990) were used for an empirical analysis of determinants of international
tourist expenditure for the long-run in Thailand. And the Vector Error
Correction Mechanism (VECM) model was used for an empirical analysis of
determinants of international tourist expenditure for short-term dynamics in
Thailand. The economic variables used in this research were: expenditure of
international tourists to Thailand, the numbers of international tourists to
Thailand, the GDP of the countries of origin of international tourists, the world
price of kerosene-type jet fuel, the relative cost of Thailand with the cost of the
countries of origin of international tourists, and both the real exchange rate and
exchange rate risk of Thailand and the countries of origin of international
tourists to Thailand. Furthermore, this paper determined the order of integration
of the variables by six standard method tests for the unit root. Namely, the
ADF-Test (1979), PP-Test (1987,1988), KPSS-Test (1992), DF-GLS Test
(1996), ERS Point Optimal Test and Ng and Perron (2001).
There are four conclusions and recommendations that emerge from the
empirical analysis based on Johansen and Juselius (1990) (coefficients(β′) from
VECM model). First, a 1% increase in the number of international tourist
arrivals in Thailand (lag one period) in the long-run in the main source markets
of France and Canada leads to an increase in international tourist spending on
goods and services in Thailand by 2.27% and 18.35%, respectively. Otherwise
a 1% increase in the number of international tourist arrivals in Thailand (lag
one period) in the long-run in main source markets, Malaysia, China, England
and German leads to a decrease in international tourist spending on goods and
services in Thailand by 2.04%, 1.07%, 5.07% and 2.01%, respectively. The
long-run results imply that tourists from both France and Canada like the goods
and services of Thailand much more than tourists from Malaysia, China,
England and Germany. If this can be generalized for future years, it suggests
the policy makers of Thailand should help producers in Thailand develop goods
and services for the satisfaction of international tourists, especially tourists
from Malaysia, China, England and Germany. Second, a 1% increase in income
(GDPt-1) in the long-run in the main source markets of China, England,
Germany and America leads to an increase in international tourist spending on
goods and services in Thailand by 0.97%, 6.45%, 1.96% and 1.80%,
respectively. Otherwise a 1 % increase in income (GDPt-1) in the long-run in
Canada leads to an decrease in international tourist spending on goods and
services in Thailand by 77.04%. If this can be generalized for future years, then
it suggests that the policy makers in Thailand should continue the development
of the Thai tourism industry. Third, a 1% increase in the cost of transportation
(world price of jet fuel) in the long-run leads to a reduction of spending on
goods and services in Thailand by tourists from the main source markets
(Malaysia, China, England, Germany, France and America) by 0.97%, 0.26%,

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0.53%, 0.10%, 0.35% and 0.28% respectively. Otherwise a 1% increase in
transportation costs (world price of jet fuel) in the long-run leads to an increase
in spending on goods and services in Thailand by Canadian tourist by 2.43%. If
this can be generalized for future years, then it suggests that the policy makers
of Thailand should increase support for international low cost airlines or reduce
the cost for international airlines arriving in Thailand because the Thai
government can not control the price of jet fuel in future. Fourth, in the long-
run the exchange rate risk is an important determiner of international tourist
spending on goods and services and a 1% increase in the exchange rate risk of
Thailand against the currency of the major tourist markets of Malaysia, China,
England, Germany and Canada leads to a decrease in international tourist
spending on a goods and services in Thailand by 1.40%, 0.46%, 0.09%, 0.17%
and 2.49% respectively. This results is consistent with economic theory and it
suggests that the Reserve Bank of Thailand should be careful when using any
policy that impacts on Thai currency because when the Thai currency is very
both strong and risk, it not only negatively impacts on export goods and
services (Anderson and Garcia (1989), Pick (1990), Chukiat (2003)) but it also
decreases international tourist spending on goods and services in Thailand.

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