The decline of tourism income elasticities in a global context

Based on the standard tourism demand model for quarterly tourism exports of six different world regions and their total, the authors applied a panel econometric approach to measure potential differences in income elasticities due to the medium-term speed of growth of the world economy. The evidence demonstrated that, related to the identified different growth periods, income elasticities showed significant variations. For 1977–1992, it was possible to measure the highest income elasticities of all periods. For 1994–2003 and 2004–2013, the income elasticities decreased from period to period. For the last decade, the values of the income elasticities were lower than one. The reasons for the decline in the income elasticities from the first to the second period were the ongoing saturation process and the slowing down of economic growth resulting in a change in consumer behaviour. The decline in income elasticities from the second to the third period was mainly due to the dramatic deterioration in the economic environment contributing to higher uncertainty about the future, with the result that precautionary saving increased, liquidity constraints limited expenditures on luxuries in favour of necessities and tourists preferred domestic destinations instead of going abroad.