Determinants of International Tourism Flows to the Republic of Croatia: An SUR Analysis of Panel Data from 1993-2015

Abstract: This paper examines origin-effects of tourist flows into Croatia from 1993-2015, a time period that features several important events: the fragmentation of Yugoslavia, the European recession, and Croatia’s accession to the European Union. Applying the seemingly unrelated regression (SUR) approach to a large panel data set with the number of annual arrivals from each origin country as the dependent variable, we identify and analyze the determinants of tourism flows to Croatia. A series of augmented gravity model specifications reveals that inflows can be explained by geographic proximity, GDP per capita, origin country population, and openness. The role of the real exchange rate variable is inconclusive, and in fact problematic for years 1993-95 when hyperinflation plagued the region in the wake of Yugoslavia’s dissolution. The results confirm the validity of the models, both for the subset of origin countries and for the subset of non-origin countries for which otherwise complete data are available. Given the importance of tourism to Croatia’s national accounts position, implications for tourism policy are discussed, as are suggestions for future research. Keywords: Tourism Origin-Effects, Gravity Model, Croatia JEL Classification: C33, O52, Z