Tourism in the Balearic Islands: A dynamic model for international demand using panel data

The Balearic Islands are one of the most important tourist destinations in the Mediterranean Sea. The tourism sector dominates the economic activity of the islands. The purpose of this study is to identify and measure the impact of the main determinants of the inbound international tourism flows. The annual panel data set includes the number of arrivals from the 14 most important generating countries during the period 1991–2003, and a number of possible explanatory variables. Taking into account the changing structure of consumer preferences, a dynamic model is estimated. The estimated coefficient for the lagged dependent variable may be reflecting the importance of consumer loyalty to the destination as a determinant of tourism demand. The results suggest that the demand is heavily dependent on the evolution of economic activity in each of the origin countries and on the relative cost of living of tourists in the destination. This study also suggests that diversification of promotion and provision of high-quality services are some recommended measures of tourism policy.