Tourism industry has been an important contributor to the Malaysia economy. In this paper we inspect variations in the long run demand for tourism from Australia to Malaysia. The demand for tourism has been explained by macroeconomic variables, including income in Australia, tourism prices in Malaysia, tourism price substitute, travel cost and trade value between the two countries using the recently developed autoregressive distributed lag (ARDL) ‘Bound test’ approach to cointegration. Quarterly time series data from 1998:Q1 to 2007:Q3 were used for this analysis. This paper finds that long run equilibrium exists among variables. The results also show that the political instability in 1999, and the outbreak of Severe Acute Respiratory Syndrome (SARS, 2003) significantly affected Malaysia’s tourism demand.
