Modeling International Tourism Demand: Evidence from European Arrivals to Pakistan Using Panel Data Techniques

Abstract

This study investigates the determinants of international tourism demand in Pakistan using annual panel data from ten European source countries — the United Kingdom, Belgium, Germany, Spain, the Netherlands, France, Sweden, Switzerland, Norway, and Turkey — spanning the period 1990 to 2019. The Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration is applied to each country individually to identify both long-run and short-run relationships between tourist arrivals to Pakistan and four key explanatory variables: real gross domestic product (RGDP), relative price of tourism (RPT), unemployment rate (UNR), and population growth rate (PGR). The Augmented Dickey-Fuller (ADF) unit root test confirms that the series are integrated at mixed orders — I(0) and I(1) — which justifies the use of the ARDL framework. The bound test results reveal statistically significant long-run cointegrating relationships for the United Kingdom, Belgium, Germany, Spain, the Netherlands, and Turkey, while France, Sweden, Switzerland, and Norway exhibit no such long-run associations. The long-run coefficients indicate that real income is the dominant and most consistent driver of tourist arrivals, with elasticities ranging from 5.70% for Spain to 13.21% for the United Kingdom. Relative tourism prices exert a negative influence on demand, reflecting the price sensitivity of European visitors, while population growth in the source country and unemployment rates produce mixed and country-specific effects. Error Correction Model (ECM) estimates confirm relatively rapid adjustment to equilibrium, with correction speeds ranging from 52.2% per annum for the UK to 214% for Germany. Structural stability of all estimated models is confirmed by CUSUM and CUSUMSQ tests. The findings carry important implications for Pakistan's tourism policy, suggesting that marketing efforts in high-income European markets, competitive pricing strategies, and improvements in destination infrastructure are essential for sustainable growth in inbound tourism.