This section lays out our empirical approach to test the channels through which digital platforms affect
the demand for tourism services, as outlined in the previous section. It also describes the data used in the
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3.1
An extension of the gravity model to trade in tourism services
In this section we extend the gravity equation applied to goods trade in Anderson and Van Wincoop (2003)
to trade in tourism services.
8
With CES preferences over a basket of tourist destinations, demand 𝑇 for
tourist services by the origin country
o from destination country
d is given by the following expression:
(1)
𝑇
.
In equation (1), 𝑌 and 𝑌 represent countries with o and d income levels; 𝑌 represents world income;
𝑃 and Π represent what Anderson and Van Wincoop (2003) call
multilateral resistance terms, which
capture factors in the rest of the world that affect bilateral demand for tourism services between
countries o and d; 𝜖 is the demand elasticity with respect to the cost of tourism services.
The term 𝜏 is the overall bilateral cost of tourism services faced by visitors from the origin country o to
destination d. As reflected in expression (2), such cost is proxied by geographic distance between the
destination and origin countries ( 𝐷
), the bilateral real exchange rate ( 𝑅𝑋𝑅
), whether the two
countries share a common border (𝐶𝐵
1), speak a common language (𝐶𝐿
1), have ever been in a
colonial relationship (𝐶𝑅
1), or are members of a free trade agreement (𝐹𝑇𝐴
1). In expression (2),
the different parameters 𝛼 represent the elasticity of the cost of tourism services 𝜏 with respect to a
continuous variable x, or when the latter is a binary variable instead, the overall percent increase in 𝜏
for a change in x.
(2)
𝜏
𝐷 𝑅𝑋𝑅
𝑒
𝑒
𝑒
𝑒
.
Distance can be naturally interpreted to affect the cost of travel services through the cost of
transportation services: other things equal, the farther away the destination, the higher the cost of
transportation, and thus the lesser the demand for tourism services from that destination. Sharing a
common border would mitigate travel costs given the implied proximity but also through more travel
modes being available. In addition, closer proximity could facilitate getting information about a given
destination, thus dispelling any apprehension that a would‐be traveler may have about visiting that
location, as discussed by Hoonsawat (2016).
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Previous applications of the gravity equation to tourism include Culiuc (2014).
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Sharing a common language would presumably mitigate the cost of travel as well, both pecuniary and
non‐pecuniary costs. Finding information about a particular destination might be easier and less time‐
consuming for travelers who speak the local language. A common language would also reduce the
potential apprehension of visiting a foreign country. A similar argument may be made with regards to
countries that share a colonial relationship, as visitors may feel greater cultural affinity to the destination
country. In addition, colonial ties, past or present, may also induce travel between the two countries
because of existing cross‐border family bonds. It is important to note that countries speaking a common
language or sharing a colonial relationship have deeper commercial ties —such countries trade more
goods with one another, a constant result of all gravity studies— which should result in increased business
travel. Since our dependent variable is the number of visitors, our empirical results may capture other
reasons for traveling, in addition to tourism.
The discussion in section 2 suggests that the increased use of digital platforms would affect the cost
elements behind the term 𝜏 . The reduction in search cost for air travel would make the distance and
the common border terms less binding. Similarly, digital planning tools would help mitigate language
barriers —digital platforms offer services in several languages— and reduce the cost of finding suitable
accommodations as well as other travelers’ opinions about a given destination. Digital tools could also
help bridge cultural gaps between a given origin‐destination pair —making the colonial relationship less
of an advantage when visiting a country.
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