U.S. tourism demand: Seemingly unrelated regression equation models

The purpose of this study was to build a tourism demand systems model which incorporated inbound, outbound, and domestic tourism of the U.S. To build this system, first, an analysis of the U.S. tourism demand system, and second, an estimation of the linear expenditure system of the U.S. (centered on tourism-oriented products) were conducted. The U.S. tourism demand system considers inbound, outbound, and domestic tourism. The commodity groups of the linear expenditure system include transportation, lodging, food service, entertainment/recreation, and other goods and services. This study utilized the seemingly unrelated regression equation (SURE) technique, which considers correlations between error terms. The analysis results reveal that the SURE estimation is preferable over the ordinary least square (OLS) method in estimating tourism demand systems. Tourism to overseas destinations tends to be income elastic, but tourism to neighboring countries (Mexico and Canada) is not. The minimum subsistance levels of food service, lodging, and entertainment/recreation industries are relatively greater than that of transportation. Therefore, expenditures on food service, lodging, and entertainment/recreation cannot be reduced much, and thus does not differ by differences in destinations. However, spending on transportation can be reduced more compared to other tourism-oriented products (i.e., transportation is a luxury good), and differs by the distance traveled to destinations. Thus, market segmentation by income to overseas destinations is recommended (except for tourism from the U.K. to the U.S.), but not the neighboring countries and domestic tourism. Tourism to overseas countries tends to be price elastic. However, tourism to neighboring countries is not. Promotion based on price can be suggested for the inbound tourism from Canada, Japan and inland European countries, outbound tourism to inland European countries, and the domestic tourism. There are complementary and substitution effects between international tourism. The U.S. competes against Canada for tourism from Japan and inland European countries (substitution). On the other hand, two countries (the U.S. and Canada) need to cooperate to attract U.K. tourists to North America (complement). The price of each tourism-oriented product (transportation, lodging, food service, and entertainment/recreation) is inelastic. However, as a whole (for instance, inclusive package tours), it is elastic. Therefore, a price hike for one tourism-oriented product may improve the sales amount of the industry, but an overall price hike may decrease the total quantity of tourism products demanded. In addition, all tourism-oriented products are substitutes for one another. However, the substitution effects are minimal compared to those of other goods and services. Finally, further applications of SURE to other systems of tourism were recommended. (Abstract shortened with permission of author.)...