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Nonstationary
panel
data
methods
applied
on
a
winter
tourism
demand
model
Franz
Eigner
August
2009
University
of
Vienna
UK
Advanced
Econometrics
with
Prof.
Costantini
Table
of
contents
1. Introduction.........................................................................................................................................................................1
2. Winter tourism demand model...................................................................................................................................1
3.1. Preliminary considerations..................................................................................................................................2
3.3. Cointegration tests...................................................................................................................................................3
4. Concluding remarks.........................................................................................................................................................4
5. References............................................................................................................................................................................5
1. Introduction
In
this
report,
methods
for
nonstationary
panel
data
are
applied
on
a
winter
tourism
demand
model
for
Austrian
ski
destinations.
Assuming
cross‐section
independence,
cointegrating
relationships
are
employed
and
estimated
by
OLS,
fully
modified
OLS
(FM‐OLS)
and
dynamic
OLS
(DOLS).
Panel
cointegration
analyses
are
made
with
the
statistical
software
GAUSS
(Aptech
Systems,
2001),
using
the
packages
Coint
2.0
by
Ouliaris
and
Phillips,
NPT
1.3
(Kao/Chiang,
2002)
and
CNPT
by
Hlouskova
and
Wagner.
2. Winter
tourism
demand
model
The
winter
tourism
demand
model
is
applied
for
N=20
ski
destinations
in
Austria
for
the
period
1973‐2006
(T=34).
1
Winter
tourism
demand
is
measured
by
the
number
of
overnight
stays
(NIGHTS),
which
is
assumed
to
depend
on
relative
purchasing
power
(PP)
and
income
(GDP)
of
the
tourist’
countries
and
on
the
climate
variable
snow
(SNOW),
measuring
the
number
of
days
of
snow
cover.
Thus,
the
tourism
demand
model
follows
a
typical
neoclassical
demand
function,
using
prices
and
income
variables,
together
with
a
climate
variable.
NIGHTS,
GDP
and
PP
enter
the
equation
with
their
natural
logarithm.
Due
to
the
log‐log
specification,
coefficients
of
GDP
and
PP
can
be
interpreted
as
income
elasticity
and
price
elasticity
respectively.
Panel
time
series
are
plotted
in
Figure
1
using
STATA
(StataCorp,
2007).
Figure 1: Panel‐data line plots for panel time series.
1
The
original
dataset
is
described
in
Toeglhofer
and
Prettenthaler
(2009).
It
consists
of
a
cross‐section
panel
with
185
ski
destinations
for
the
period
1973‐2006.
The
original
dataset
could
not
pass
nonstationarity
tests
for
panels.
In
order
to
find
nonstationarity
for
all
time
series
in
the
panel
variables,
the
dataset
was
reduced
to
the
20
largest
ski
destinations
in
Austria.
Smaller
dataset
of
5,
6
or
10
destinations
were
also
considered.
They
fulfilled
nonstationarity
assumptions,
but
no
cointegrating
relationships
could
be
detected.
1
3. Panel cointegration tests and estimations
3.1. Preliminary
considerations
Regressions
based
on
nonstationary
time
series
typically
suffer
i.a.
from
potential
spurious
regression
problems.
Instead
of
differencing
the
data
set
to
make
them
stationary,
hence
losing
long‐term
information
of
the
data,
one
could
improve
estimation
results
by
making
use
of
cointegration
relationships,
for
the
case
they
exist.
Three
estimators
for
nonstationary
panel
regressions
are
applied
in
this
study.
These
are
OLS,
fully
modified
OLS
(FM‐
OLS)
and
dynamic
OLS
(DOLS).
Whereas
OLS
estimates
are
generally
biased
due
to
endogeneity
in
variables,
FM‐OLS
accounts
for
both
serial
correlation
and
endogeneity
in
the
regressors
that
results
from
the
existence
of
a
cointegrating
relationship.
It
„corrects
the
dependent
variable
using
the
long‐run
covariance
matrices
for
the
purpose
of
removing
the
nuisance
parameters
and
applies
the
usual
OLS
estimation
method
to
the
corrected
variables.“
(Kao/Chiang/Chen,
1999).
The
DOLS
estimator
also
corrects
for
the
nuisance
parameter,
but
with
including
lead
and
lag
terms.
Despite
super
consistency
of
FM‐OLS,
DOLS
and
also
for
OLS
estimators,
Kao
and
Chiang
(1998)
found
that
a
substantial
estimation
bias
might
remain
for
moderate
sample
sizes.
However
they
suggest
that
DOLS
estimations
should
be
most
promising
in
estimating
cointegrated
panel
regressions.
Before
univariate
unit
root
tests
are
applied,
their
weaknesses
should
be
reminded
in
advance.
Due
to
their
low
power
in
general,
they
are
not
able
to
distinguish
a
unit
root
from
a
near
unit
root
process.
Moreover
they
may
erroneously
identify
a
trend
stationary
process
as
a
unit
root,
especially
in
the
case
where
the
stochastic
portion
of
the
trend
stationary
process
has
sufficient
variance.
This
problem
may
be
relevant
in
this
study
due
to
the
usage
of
GDP,
which
is
typically
considered
as
trend‐stationary.
However
one
can
increase
the
power
of
univariate
unit
root
tests
substantially
by
using
a
longer
data
span,
e.g.
annual
data
as
in
this
study.
3.2. Panel
unit
root
tests
At
first
(independent)
unit
root
tests
have
to
be
applied
on
each
panel
variable.
All
unit
root
tests
were
examined
with
two
lagged
first
difference
terms
in
the
ADF
equation,
including
a
constant
and
a
trend.
Obtained
p‐values
are
given
in
table
1.
Table 1: Panel unit root tests.
LLC IPS MW
log(NIGHTS) 1.00 0.03 0.12
SNOW 0.85 <0.01 <0.01
log(GDP) 0.60 <0.01 <0.01
log(PP) 0.50 0.32 0.73
GDP 0.99 1.00 1.00
Notes:
ADF equations include two lagged first difference terms
together with a constant and a trend.
LLC … Levin, Lin and Chu (2002)
IPS … Im, Pesaran and Shin (1997, 2003)
MW … Maddala and Wu (1999)
2
All
three
unit
root
tests
check
the
null
hypothesis
of
panel
time
series
integrated
of
order
one
against
the
alternative
of
stationarity.
This
paper
will
follow
unit
root
tests
with
homogenous
alternative
hypothesis,
which
are
LLC
and
MW.
Even
though
the
ones
with
heterogenous
alternative
hypothesis
like
IPS
are
more
flexible,
their
results
may
contrast
with
the
homogenous
alternative
hypothesis
in
the
panel
cointegration
test,
assuming
a
common
cointegrating
vector
for
all
destinations.
As
can
be
seen
in
table
1,
the
null
hypothesis
is
not
rejected
for
log(NIGHTS)
and
log(PP).
The
rejection
of
the
null
hypothesis
for
SNOW
may
indicate
that
at
least
some
of
its
time
series
are
stationary,
making
SNOW
inadequate
for
cointegration
analyses.
Surprisingly,
the
null
hypothesis
of
log(GDP)
is
also
rejected
according
to
MW2.
This
results
contradicts
with
the
graphical
analysis
in
figure
1,
which
strongly
supports
GDP
to
be
integrated
of
order
one,
therefore
consisting
of
a
unit
root.
Examining
unit
root
tests
with
the
untransformed
levels
of
GDP
(not
taking
the
logarithm),
one
actually
obtains
the
result
of
GDP
being
integrated
of
order
one.
Nonetheless,
the
logarithm
of
GDP
will
be
used
in
further
analyses
due
to
interpretation
reasons.
A
disadvantage
of
these
panel
tests
is
that
they
do
not
provide
explicit
guidance
concerning
the
size
of
the
fraction
of
(non)stationary
time
series.
At
least
the
data
set
for
this
study
has
a
moderately
large
time
dimension
over
a
long
(annual)
time
period,
which
should
lead
to
unit
root
tests
with
higher
power
than
for
data
sets
containing
observations
over
a
short
time
period.
However
one
should
bear
in
mind
that
independence
between
the
unit
roots
is
assumed
in
order
to
keep
analyses
simple,
although
this
assumption
may
be
implausible.
3.3. Cointegration
tests
Cointegration
tests
are
conducted
on
three
estimation
equations,
consisting
of
either
one
of
the
independent
variables
(GDP/PP)
or
both.
For
instance,
equation
(1),
using
both
independent
variables
as
regressors,
is
given
as:
where
ε it
denotes
the
white
noise
disturbance
term.
Individual
fixed
effects
are
included
by
µ i ,
capturing
heterogeneity
between
the
destinations.
€
The
presence
of
cointegration
of
log(NIGHTS)
with
log(GDP),
log(PP)
or
both
is
confirmed
by
testing
for
a
unit
root
in
€ €
the
residuals
of
the
LSDV
regression
for
each
of
the
three
equations.
Two
homogenous
tests
suggested
by
Kao
(1999),
which
are
the
Dickey
Fuller
(DF)
panel
cointegration
test
and
its
augmented
version
(ADF),
are
assessed.
Obtained
p‐
values
of
the
latter
are
given
in
Table
2.
Table 2: ADF panel cointegration test table for all three equations.
2
However
the
null
hypothesis
of
MW
(as
well
as
of
LLC)
is
not
rejected
when
only
one
lagged
first
difference
term
in
the
ADF
equation is used.
3
With
the
null
hypothesis
of
no
cointegration,
test
results
suggest
the
presence
of
cointegration
at
a
significance
level
of
5%
for
all
equations.
Consequently
panel
regressions
can
be
estimated
accounting
for
these
cointegration
relationships.
3.4. Estimation
table
Table
3:
Estimation
table
for
log(NIGHTS)
using
OLS,
FM‐OLS
and
DOLS.
OLS FM-OLS DOLS
(1) (2) (3) (1) (2) (3) (1) (2) (3)
log(GDP) 0.39 0.39 - 0.38 0.38 - 0.31 0.34 -
(10.6) (10.3) (9.4) (9.2) (6.5) (7.1)
log(PP) 0.37 - 0.50 0.39 - 0.54 0.06 - 0.86
(5.2) (4.5) (12.6) (11.2) (1.8) (15.6)
adjusted R_squared 0.63 0.61 0.03 0.61 0.58 0.04 0.24 0.27 0.11
Notes:
N=20, T=34; estimated cointegration equation include fixed effects
t-statistics are given in parentheses
FM-OLS with averaged correction factors (Kao and Chiang, 2000)
DOLS (Mark and Sul, 2001); 2 lags and leads for all variables were chosen
Given
the
superiority
of
the
DOLS
over
the
FM‐OLS
as
suggested
by
Kao
and
Chiang,
one
obtains
an
income
elasticity
of
0.31,
and
a
price
elasticity
of
0.06.
Price
elasticity
is
therefore
inelastic
and
has
an
unexpected
positive
sign.
However
purchasing
power
probably
should
not
be
considered
as
an
important
component
in
winter
tourism
demand
in
Austria.
Not
only
due
to
statistical
considerations,
which
indicate
that
the
coefficient
is
small
and
only
significant
at
the
10
percent
significant
level,
but
also
due
to
economic
reasons,
concerning
the
high
amount
of
German
tourists
in
the
data,
having
in
common
a
similar
price
evolution
and
a
fixed
exchange
rate
regime.
Though
one
can
assume
that
the
influence
of
this
variable
will
increase
in
the
future,
due
to
the
increasing
amount
of
Eastern
European
tourists.
The
estimated
inelastic
income
elasticity
also
does
not
correspond
with
the
expectations
of
tourism
demand
as
a
luxury
good
and
emphasizes
the
need
for
extensions
for
the
current
model.
4. Concluding
remarks
Extensions
of
this
study
should
definitely
cope
with
cross‐section
dependence
in
the
panel
time
series,
which
is
likely
to
be
present
due
to
the
common
economic
area
for
the
ski
destinations.
Accounting
for
cross‐section
dependence
will
necessarily
consider
the
possibility
of
cointegration
between
the
panel
variables
within
groups
as
well
as
across
groups,
due
to
unobserved
I(1)
common
factors,
affecting
some
or
all
the
variables
in
the
panel.
One
could
further
follow
Phillips
(1993),
who
provides
a
general
framework
which
“makes
it
possible
to
study
the
asymptotic
behaviour
of
FM‐OLS
in
models
with
full
rank
I(1)
regressors,
models
with
I(1)
and
I(0)
regressors,
models
with
unit
roots,
and
models
with
only
stationary
regressors.”
Such
a
framework
would
enable
to
“consider
the
use
of
FM
regression
in
the
context
of
vector
autoregressions
(VAR's)
with
some
unit
roots
and
some
cointegrating
relations”,
which
is
therefore
a
multivariate
extension,
accounting
for
the
underlying
structure
between
the
time
series.
4
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5