This paper studied the determinants of European demand to Thai tourism, estimates the elasticities of demand – the price elasticity, the income elasticity and the cross-income elasticity - and also explored the dynamics of those elasticities over the sample period of 1996Q1-2008Q4. To estimate the elasticities of tourism demand, the cointegration analyses – the Engle-Granger (EG) method and the Johansen Cointegration Test – were employed. In additional to the two approaches, the Rolling Regresssion and the Recursive Ordinary Least Square (OLS) were utilised as analytical tools to investigate the dynamics of the European demand to Thai tourism. The samples in this study were divided into two groups – 11 country models and 3 income-group models. Concerning empirical results, the price elasticity was found to be inelastic both in the country models and in the income-group model, according to the two means of estimation. Meanwhile, the income elasticity in two groups of samples, either in the country models or the income-group model, was found to be elastic or highly elastic. This was in line with empirical evidence suggested by the existing empirical literature. The cross-price elasticities were found to be mixed depending on the competitive destinations. Regarding the dynamics of the price elasticity overtime, for both the country models and the income-group models, were found to be inelastic and approaching zero, whereas those of the income elasticity were found be elastic and increasing overtime. Based upon these findings, following policy recommendations were concluded. Firstly, on the policymakers’ front, low tourism strategies were unlikely to be effective in attracting more European tourists and increasing tourism receipts given the inelastic price elasticity. Policies promoting Thailand’s images as a tourism destination meeting European holidaymakers’ motivations for travelling should be implemented. This was due to the fact that the habit persistence or the so-called word-of-mouth effects was a crucial and significant determinant of European demand to Thai tourism. On the other hand, for the Thai tourism entrepreneurs, they could increase some certain degrees of tourism products in order to gain more revenues with losing significant number of visitors. Secondly, provided the findings of the income elasticity, the Thai tourism sector was exposed to shocks affecting income levels of the tourism-generating countries and those were unpredictable. The best strategy to minimise uncertainties was to promote and create Thailand to be a “must-go tourism destination” as a mean to generate tourism income in the long-run.
