Demand Function for Croatian Tourist Product: A Panel Data Approach Aper Title

Abstract

Croatia as a small country with GDP of 14.255 US $ per capita and 44.6 milliard Euro of gross external debt has a strong need for a development process and construction of production bases which, in the future, will be capable to generate revenue for the return of foreign debt. As a small country, with relatively low produc- tion potential, the service sector seems the only way for achieving the necessary income to servicing foreign debt, and to start new development cycle. In Croatia, tourism sector participates with approximately 3% in the structure of GDP, while revenues from tourism has been growing constantly, from 10.6% (1996) to 22% (2008) in GDP. This sector employs about 3.5 of total employees and has a significant multiplicative effect on the overall economy, where the multiplier of tourist consumption is around 2.5. According to statistics, tourism activity tends to grow faster than the total Croatian production. The high import dependence and the weak export propulsive of goods, in last decade, had a negative impact on external trade sector, furthermore, the trade deficit reached 7.3 billion Euros, while revenues from tourism amounted 6.4 billion Euros (2009). In the Mediterranean basin the most significant Croatian competitors are France, Spain and Italy, states that are also among the five most desirable destinations in the world, while Croatia with 11 million arrivals and 56.3 million overnights (2009), was ranked around 20th place. Tourism is a sector that involves a multiplic-ity of economic activities responding to differentiated demands with specific characteristics at the national and international levels. Identifying the main determinants of tourism demand is becoming imperative for the country whose development process depends heavily on tourist revenues. Tourism brings obvious economic benefits, with the two most important being the generation of foreign exchange and revenues as well as the creation of jobs. Therefore, it is no surprise that tourism is an important economic activity in many parts of the world, including Croatia. Given the importance of the tourism, the aim of this paper is to design the model of demand for Croatian tourist product.