Abstract—The objective of this paper is to investigate the
nexus between capital formation and tourism demand in some
European countries. Particularly, the study aims to determine
empirically the degree of elasticity of tourism demand in
response to the changes of capital formation. The demand
elasticity in terms tourism requires further clarification due to
insufficient exploration in the literature. Due to the absence of
cross-national evidence on this issue, the paper involves the
application of Feasible Generalized Least Squares (FGLS) in
panel data framework for this purpose. By imposing the
assumption of highly innovative and developed status, a group
of European countries with highly innovative index clarified by
the Global Innovation Index are chosen as sample for the study.
The result shows robust findings in which the sensitivity of
estimation is checked as well as the correction for bias estimates
is implemented with the Seemingly Uncorrelated Regression
(SUR) method. The conclusion is in favor to the null hypothesis
specified in this paper where tourism demand is inelastic to the
changes of capital formation in this group of innovative and
developed countries.
Index Terms—Capital formation, elasticity, innovation,
tourism.
Enn-Lun Yong is with the School of Science and Technology, Universiti
Malaysia, Kota Kinabalu, Sabah, CO 88400 Malaysia (e-mail:
ennlunyong@gmail.com).
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Cite:Enn-Lun Yong, "Tourism and Capital Formation in Highly Innovative
Regional Countries: Evidence from Feasible Generalized
Least Squares Method," Journal of Economics, Business and Management vol. 2, no. 3, pp. 168-172, 2014.