Modeling Malaysia’s Tourism Demand Using an Augmented Gravity Model

Yap, Xin Yi (2025) Modeling Malaysia’s Tourism Demand Using an Augmented Gravity Model. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

Malaysia's tourism sector is one of the fastest-growing in the country because of the high demand from travelers worldwide. To guarantee Malaysia's tourist industry's long-term, sustainable growth, it is critical to determine the factors influencing demand. The gravity model has been used to determine the factors influencing Malaysia's tourist demand using a static panel technique. The study's factors included the income of the nations of origin, the income of the destination, the cost of transportation, population, and the consumer price index (CPI). Ten main nations that generate a large number of inbound tourists were chosen since they account for over 90% of all foreign visitors to Malaysia. The research period covered the years 2015–2023. The analysis applied Pooled OLS, Fixed Effects, and Random Effects models, with the Feasible Generalized Least Squares (FGLS) method selected as the final model due to the presence of heteroskedasticity and serial correlation. The empirical findings reveal that Malaysia’s GDP and transportation cost consistently influence inbound tourism demand, while origin GDP and CPI are significant only before COVID-19, and population shows varying effects between the two periods. These results highlight that Malaysia’s economic resilience and affordable travel remain central to sustaining tourism flows, while global shocks such as the pandemic shift the relative importance of traditional determinants. Policy implications emphasize strengthening Malaysia’s domestic economy, improving affordability, and enhancing tourism infrastructure to ensure sustainable growth in the long run