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Innovation, Tourism Demand and Inflation: Evidence from 14 European Countries

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Author(s): Enn-Lun Yong

Journal: Journal of Economics, Business and Management
ISSN 2301-3567

Volume: 2;
Issue: 3;
Start page: 191;
Date: 2014;
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Keywords: Costs | inflation | innovation | tourism demand.

ABSTRACT
The purpose of the paper is to investigate how inflation have altered the contribution of innovation to the tourism demand to the European countries during the last few decades. A hypothesis is proposed to prove that innovation of highly innovative countries in promoting their tourism industry. In addition, it is to assess how this relationship has been altered by the costs of inflation in the countries. Based on the recent Global Innovation Index (GII), 14 European countries are chosen as sample, while these countries have been incurring the inflation over the sample period, 1988-2010. A fixed-effect panel data framework is estimated with the Feasible Generalized Least Squares method with bias correction. The study utilizes innovation indicator to access the impact of costs on innovation to the tourism sector. To ensure robustness of estimation, the study focuses on the sensitivity of estimation with respects to the time lag by estimating the models with sufficient number of time lag, while also ensuring the sufficient degree of freedom for the estimation. The result supports the hypothesis that the countries have increasingly stronger position of innovation to the tourism industry and this benefit is not altered by the inflation pressure occurred in the countries.
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