Forecasting international tourist flows to Macau

Abstract

The vector autoregressive (VAR) modelling technique is used to forecast tourist flows to Macau from eight major origin countries/regions over the period 2003-2008. The existing literature shows that the VAR model is capable of producing accurate medium- to long-term forecasts, and also separate forecasts of the explanatory variables are not required. A further justification for using the VAR technique is that it permits an impulse response analysis to be performed in order to examine the ways in which the demand for Macau tourism responds to the ‘shocks’ in the economic variables within the VAR system. The implications of this analysis are discussed. The forecasts generated by the VAR models suggest that Macau will face increasing tourism demand by residents from mainland China. Since the needs of Chinese tourists tend to be different from those from other origin countries/regions, especially Western countries, the business sectors in Macau need to pay considerable attention to catering for the needs of Chinese tourists.