Tourism demand in North Cyprus Economy: Evidence from a demand model over the time period 1999Q1-2009Q4

ABSTRACT: This thesis empirically investigates the effect of world income and the relative price of tourism in North Cyprus economy based on demand for export of tourism. I conduct Engel- Granger Co-integration and unit root Augmented Dickey-Fuller (ADF) test using a sample of quarterly data covering the period 1999-2009. The Augmented Dickey-Fuller (ADF) test indicates that the variables in question are all non-stationary in levels but stationary in first differences whereas a residual-based cointegration (Engel-Granger) technique shows that there is an existence of a longrun relationship among the variables. Error correction modeling framework also indicates the relationship between quantity of export and its determinants in the short-run. It is found that ratio of price indexes has negative impact on the quantity of exports of tourism demand which stimulates export quantity of demand as ratio of domestic price to world price goes down for both long and short-run periods. The exchange rate used in both periods has a negative influence on export quantity of demand. This advises that a decrease in the exchange rate causes an increase in export quantity of demand. It is also estimated that positive significant nexus exists between world income and export quantity of demand. This evidence suggests that an increase in world income or nation’s wealth contributes to export quantity of demand for the North Cyprus economy. Keywords: Tourism demand model, North Cyprus economy, co integration, unit root, OLS technique, income and price elasticity. ……………………………………………………………………………………………………………………………………………………………………………………………………………………