The environmental uncertainty effects on the business cycle of Taiwanese hotel industry

Numerous studies have examined the factors influencing hotel performance but little is known about the environmental uncertainty determinants on the phases of hotel industrial business cycles. This study exploits the monthly time series data of lodgers in the Taiwanese hotel market over the period from January 2014 to June 2023. The double-edged environmental uncertainty impacts are applied, and the environmental uncertainty is measured by the world pandemic uncertainty index and the policy uncertainty index. Our empirical evidence indicates that the impacts of the environmental uncertainty on the demand for tourism depend on the relative strength between the negative risk-averse effect and the positive substitute effect. During the trough period, the positive substitute effect would dominate the negative risk-averse effect, which leads the demand for domestic tourism to increase. This paper suggests that, during the troughs, the potential gains under the environmental uncertainty relies on whether the outbound tourism demand can be replaced by the domestic tourism demand.