Problem Statement: Given the high contribution of tourism industry in the Malaysian economy, Malaysia has a vast view to increase its market share of the international tourist arrivals in the Asia Pacific region. Therefore, this study attempts to investigate the long run and short run demand for tourism from top ten markets (country). Approach: To accomplish this objective the ARDL Bound test approach to cointegration was carried out for quarterly time series data from 1998:Q1 to 2007: Q3. A three-stage procedure follows to test the direction of causality. In the first stage the order of integration was tested using the Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) unit root tests. The second stage involves testing for the existence of a long-run equilibrium relationship between arrivals, income, tourism price, tourism substitute price and travel cost. The third stage involves constructing standard Granger-type causality tests augmented with a lagged error-correction term where the series are cointegrated. Results: The result of ADF and PP unit root tests confirm that all variables are stationary at first difference. In addition the results indicate that a long run relationship and between variables. The results indicate that tourists from these ten countries seem to be highly sensitive to the price and the alternative destinations are complementary to Malaysia. In addition the results show that the outbreak of Severe Acute Respiratory Syndrome (SARS, 2003) has a negative affects significantly affected Malaysia’s tourism demand.
