Foreign demand for tourism in the Valencian Community: explanatory factors and Google Trends forecasting capacity

Abstract

The first part of this project studies the explanatory factors of the international tourism demand to the Valencian Community. The empirical analysis has been accomplished with monthly time series data from 2002 to 2015 and has been performed for the three main tourist nationalities that visit the community: British, French and German. The results suggest that the three tourist nationalities are sensitive to their level of income while only British tourists are sensitive to the relative cost of life. The second part discusses whether search engine data from Google Trends can be useful to improve the accuracy of tourism demand forecasts. To achieve that, we set a seasonal AR (1) model as a baseline and we compare it with an extended model which includes Google Trends variables in order to test its forecasting capacity. The results display that the extended model outperformed the baseline both in and out of sample.