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Institute for International Integration Studies IIIS Discussion Paper - page 18 / 41





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significance of GDP per capita indicates that countries with higher incomes produce more travellers.

For total services, population was found to be insignificant, however intuitively it seems reasonable that absolute size of population will have a direct impact on traveller numbers and consequently also on travel services (this is calculated as the sum of the expenditure of travellers on goods and services in the destination country). As discussed in section 4.1, the coefficient on population can be expected to be positive or negative. The positive coefficient on population of the importing country implies that larger countries produce more travellers and so import higher values of travel services. The negative coefficient on exporter population is counter-intuitive, it suggests that countries with larger home populations attract less travellers. It may reflect the importance of several small, high profile destinations (e.g., Cyprus or Malta).

To further examine the flows of travel services between countries, the standard gravity e q u a t i o n i s a u g m e n t e d a n d ( 3 ) i s e s t i m a t e d . T h e a d d i t i o n a l v a r i a b l e s β 9 T e m p i a n d

β 1 0 T e m p j a r e t h e a v e r a g e a n n u a l t e m p e r a t u r e s o f t h e e x p o r t i n g a n d i m p o r t i n g c o u n t r i (see the appendix for more details on the temperature variables). e s

i j t i j 1 i t 2 j t 3 i t 4 j t 5 i j 6 i j 7 l n M = + l n G D P p c + l n G D P p c + l n P o p + l n P o p + l n D i s t a n c e + A d j a c e n c y + L a n g u a g e i j α β β β β β β β

8 i j 9 i 1 0 j t i j t + E U + l n T e m p + l n T e m p + + β β (3) β θ ε

Previous research (Lise and Tol, 2002) suggests that travellers, in particular tourist travellers, are attracted to warm climates and this is supported by the results of model (3), shown in panel II of table 4. Warmer average temperatures in the exporting country (i.e., the destination country of the traveller) have a statistically significant, positive effect on imports of travel services. The impact of temperature in the home country (the importer) is insignificant.

Transport Services

In the case of transport services (panel I in table 5), the HTM is again found to be the most efficient specification. GDP per capita and population size of both the importer and the exporter are found to be positively related to the level of imports, as is distance, adjacency and EU membership.

The positive coefficient on distance is counter-intuitive in the gravity context, but perhaps in the case of transport services it may be more reasonable. A positive coefficient implies that, as distance increases, the value of transport services (air, land and sea transport) increases. It costs more to transport a good as the distance increases. The significance of the EU variable is a change from the case of total services. This may be because the value of transport services is closely related to the value of trade in physical goods. If EU membership has a positive impact of the goods trade (as previous studies have found), this may have a knock-on effect on the demand for transport services to transport those goods within the Union. A similar effect may explain the importance of adjacency in this model.


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