The Effect of Price and Security on Tourism Demand: Panel Quantile Regression Approach

Abstract

It is of great importance for countries to increase the contribution of the tourism sector to the economy. Therefore, the authorities focus on how to increase the demand for tourism. However, the most important issue is to define the factors that influence the demand for tourism in a complex environment and this study attempts to contribute to this field. Specifically, the study examines the effects of REER (Real Effective Exchange Rate) and security conditions on tourism demand using panel data methods for 73 countries, in the tourism ranking list from UNWTO reports, over the period 2003-2018. The main results of this study show that while the effect of REER on tourism demand is negative, the security condition has a positive effect on the demand for the tourism sector. In addition to these findings which confirm the existing literature, the innovative character of the methodology – fixed-effect panel quantile regression analysis - allowed us to check whether the effects of these variables may vary in different percentiles of tourism demand. Estimation result reveals that the effect of change in REER on tourism demand increases in high percentiles. Nevertheless, the effect of the security on tourism demand decreases as percentiles increase.