| Summary: | This paper aims to evaluate an econometric model of equilibrium for
the Bulgarian foreign tourism industry. The main microeconomic
assumptions of the model are the existence of identical consumers,
identical composite tourism industry product and perfect market
conditions. The real effective exchange rate (REER) is used as a proxy
for the composite product price and other proxies are introduced for
foreign income and domestic tourism industry capacity. The data is
deseasonalised with a geometric mean and the Hodrick-Prescott filter.
The TSLS method of estimation is applied to take into account the overidentified model. The estimation results are consistent with core
microeconomic theory. The estimated model allows for price
equilibrium convergence. Dropping the initial constraints allows for
additional conclusions.
The tourism industry can substantially gain from advertising, product
diversification and diminished reliance on summer bookings. Given the
important macroeconomic role of the tourism industry under the
Currency Board regime and the potential for tourism industry
vulnerability, the government could play an important role in
promoting sustainable development in the tourism sector.
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