Estimating elasticity of demand for tourism in Dubai

This study estimates the elasticity of demand for inbound tourism from 24 countries to Dubai with a view to understand the factors that influence this demand. The variables tourist arrivals, real per capita income, relative prices, and accommodation costs were tested for panel unit roots, and panel cointegration was employed to determine the specification of the models to be used. These models were estimated employing Fixed Effects and Random Effects approaches. The choice between Fixed and Random Effects models was made using the Hausman Test. Determinants of the elasticity of demand for the entire panel are consistent with theory. Within the subgroups there are differences. Arab countries and countries of the Indian subcontinent have an income elasticity of demand >1. Tourists from the developed countries seem to be the most sensitive to relative prices and the cost of accommodation is significant only for tourists from the Arab and Indian subcontinent countries. Income elasticity of tourism especially from Arab countries and countries of the Indian subcontinent is high, indicating that marketers should tailor their strategies accordingly. Accommodation costs have negative impact on demand, highlighting the need for more budget hotels. Relative increase in prices has a negative impact on tourism demand, highlighting the need to control domestic inflation.