Croatia’s tourism industry : beyond the sun and sea.
Date: 2018-06-15
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: Croatia, Mediterranean region (EU), economic analysis, foreign tourism, hotel industry, mass tourism, tourism, tourism statistics

ISSN 2443-8030 (online)

Croatia’s 
Tourism 
Industry: 
Beyond the Sun and Sea

Kristian Orsini and Vukašin Ostojić

ECONOMIC BRIEF 036 | MARCH 2018

EUROPEAN ECONOMY

EUROPEAN 
ECONOMY

Economic and 
Financial Affairs

European Economy Economic Briefs are written by the staff of the European Commission’s Directorate-
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European Commission  
Directorate-General for Economic and Financial Affairs  

Croatia’s Tourism Industry:  
Beyond the Sun and Sea 

By Kristian Orsini and Vukašin Ostojić 

Summary 

With its advantageous location and natural beauties, Croatia has been an important tourist destination ever 
since  the  surge  of  large-scale  international  tourism.  The  wars  in  former  Yugoslavia  of  the  early  90s 
severely affected both international demand and the tourist infrastructure, but in the past 20 years tourism 
has been on the rise again. International tourists' expenditure in Croatia amounts to almost 20% of GDP – 
by  far  the  largest  share  in  the  EU.  Croatia  features  a  typical  "sea  and  sun"  tourism  model  with  stays 
concentrated in coastal areas in the summer months. The accommodation offer is skewed towards relatively 
cheap  structures  (such  as  private  vacation  houses  and  camping  grounds)  and  average  tourist  spending  is 
below that recorded in EU peers. 

Structural differences in tourism models across countries are typically reflected in a different sensitivity of 
demand  for  tourism  services  to  income  and  prices.  We  estimate  the  international  tourism  demand  for 
Croatia  and  three  other  Mediterranean  destinations  using  a  comparable  specification  where  demand  is 
modelled as a function of purchasing power in the EU, the relative price of tourism services and travel costs 
for  each  country.  We  find  evidence  that  the  international  demand  for  Croatian  tourism  is  more  income 
elastic  than  for  other  Mediterranean  destinations.  Our  findings  confirm  that  tourism  demand  can  be 
extremely  sensitive  to  prices,  although  Croatia  features  the  lowest  price  elasticity  among  the  countries 
considered.  Tourism  revenue  in  Croatia  –  more  than  for  other  destinations  –  is  driven  by  the  increasing 
number of tourist arrivals and overnights, while average spending per tourist is stagnating.  

These findings suggest that tourism is set to remain a key sector of the Croatian economy. However they 
also highlight that an excessive reliance on the current model may not be sustainable in the long term. The 
supply of new and well differentiated tourism services could mitigate the risks of stagnation, maximise the 
impact  on  other  sectors  of  the  economy  and  reduce  congestion  and  environmental  costs.  Croatian 
authorities are aware of challenges and opportunities, but differentiating away from the traditional offer has 
proven difficult so far. This calls for renewed and coordinated efforts by policymakers at all government 
levels to address the existing shortcomings and support the development of the tourism sector in terms of 
scope and quality of the offer. 

Acknowledgements:  We  are  grateful  to  Laura  Bardone,  Manfred  Bergmann,  Hans-Berend  Feddersen 
and Stefan Kuhnert for useful comments and suggestions on an earlier draft. 

Contact: Kristian Orsini, kristian.orsini@eeas.europa.eu, and Vukašin Ostojić, vukasin.ostojic@ec.europa.eu,  
European  Commission,  Directorate-General  for  Economic  and  Financial  Affairs,  Economies  of  the 
Member States - Spain, Croatia. 

EUROPEAN ECONOMY                                                                                         Economic Brief 036 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

Introduction 

is  an 

Inbound  tourism 
important  economic 
activity  and  a  key  source  of  export  revenues  for 
Croatia. With its advantageous location and natural 
attractions,  Croatia  has  always  been  an  important 
tourist  destination.  Mass  tourism,  however,  expanded 
in  the  1960s  and  in  the  1970s  in  accordance  with  the 
economic  policy  of  former  Yugoslavia  (Kapust  and 
Wiluś,  2017).  The  volume  of  arrivals  dropped 
sharply  during  the  wars  of  the  early  90s,1  but  the 
tourism industry has since recovered and – following 
a  temporary  slump  in  the  wake  of  the  global 
financial  crisis  –  is  now  booming.  Spending  by 
international  tourists  contributes  significantly  to 
domestic output and – similarly to exports of goods 
and  other  services  –  represents  a  major  source  of 
external  earnings.  According  to  BOP  statistics, 
expenditure  by  international  tourists  amounted  to 
45.5 billion EUR in 2016, roughly 19% of Croatia's 
GDP  and  over  35%  of  its  export  revenues,2 
confirming  the  economy's  high  reliance  on  the 
tourism  sector.    Moreover,  international  tourism 
accounted 
the  employed 
roughly  7%  of 
population.3  

for 

2). The picture is partly biased by the weaker growth 
recorded by Italy – the second largest destination for 
international  tourism  after  Spain.  However,  even 
when  excluding  Italy  from  the  aggregate,  Croatia 
still outperformed all of its regional competitors.  

Figure  2:  International  arrivals,  non-residents'  overnight 
stays  and  tourism  revenues  in  Croatia  and  in  the 
Northern Mediterranean (2010=100)  

Revenue Croatia
Revenue Mediterranean
Arrivals Croatia
Arrivals Mediterranean
Overnights Croatia
Overnights Mediterranean

160

150

140

130

120

110

100

90

80

2004

2006

2008

2010

2012

2014

2016

Figure 1: Tourism revenues and employment, 2016

Note:  The  Northern  Mediterranean  region 
Greece, Spain, Italy Malta and Cyprus  

includes 

Share of tourism revenues in GDP

Source: Eurostat 

Share of tourism related employment
(excl. domestic tourism)

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

Croatia Cyprus Malta Greece Spain

Italy

Note: See endnotes 2 and 3.  

Source: Eurostat 

In  recent  years,  Croatia  has  outperformed  its 
competitors in attracting foreign tourists. Tourist 
destinations compete among themselves in attracting 
international tourism.  Over the past decade, Croatia 
outperformed the average of the other EU countries 
in  the  Northern  Mediterranean  region  (Cyprus, 
Greece,  Italy,  Malta  and  Spain)  in  increasing  its 
international tourism revenues, non-resident tourists' 
overnight stays and arrivals from abroad (see Figure 

2 

Some  structural  weaknesses  prevent  the  sector 
from  achieving  its  full  potential.  International 
tourism is on the rise, worldwide and in Europe. Its 
expected  continued  expansion  is  an  opportunity  for 
Croatia, but the sector is still far from achieving its 
full  potential.  High  seasonality,  limited  range  of 
services,  and  low  average  spending  are  frequently 
mentioned weaknesses of the Croatian tourist model 
(Ministry of Tourism, 2013). This note tries to shed 
light  on  the  opportunities  and  challenges  of  the 
Croatian  tourism  industry.  It  first  discusses  the 
structural  characteristics  of  the  Croatian  tourism 
model by benchmarking key indicators against those 
of  its  competitors  in  the  northern  Mediterranean 
region.  It  then  analyses  the  drivers  of  demand  for 
tourism  services  in  Croatia  and  its  competitors. 
Finally,  the  note  draws  conclusions  on  how  policy 
could enhance the positive impact of tourism on the 
Croatian  economy.  The  analysis  focuses  solely  on 
international  tourism,  which  represented  about  92% 
of overall tourism in 2016. 

The Croatian tourism model in 
comparative perspective 

Croatia's  features  a  typical  "sun  and  sea" 
long  stays, 
tourism  model,  with  relatively 

 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

concentrated  in  the  coastal  areas  and  over  the 
summer  months.  Even 
though  Mediterranean 
countries  have  a  lot  to  offer  in  terms  of  historical 
and  cultural  heritage,  most  tourists  visit  them  to 
enjoy  a  warm  climate  and  the  coastal  natural 
attractions.  Like  in  several  other  Mediterranean 
destinations,  Croatian  tourism  is  focused  on  "sun 
and sea". It is geographically concentrated along the 
coast,  which  generates  congestion  costs  and  feeds 
regional  imbalances.  Moreover,  nowhere  in  the  EU 
does tourism show such a strong seasonal profile as 
in Croatia. In 2016, more than 75% of tourist nights 
were  spent  in  July,  August  and  September  (Figure 
3).  This  may  be  related  to  the  colder  weather 
conditions  outside  the  summer  months  in  Croatia 
compared 
southern  Mediterranean 
destinations.  Greece  has  also  a  very  seasonal 
tourism,  but  there  the  season  starts  already  in  April 
and ends in October. Finally, tourists in Croatia tend 
to  prefer  relatively  long  stays  –  typically  organised 
around  weekly  packages.  The  average  length  of  a 
stay  in  Croatia  was  5.3  days  in  2016,  below  the 
average length of stays in the islands of Cyprus (6.3) 
and Malta (5.9), but above Spain (4.8) or Italy (3.6), 
which are more important destinations for week-end 
city trips.4 

other 

to 

Figure 3: Yearly distribution of overnights by international 
tourists, 2016  

35%

30%

25%

20%

15%

10%

5%

0%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

EL
IT

ES
CY

HR
MT

Source: Eurostat 

The high seasonality of arrivals is challenging for 
local  businesses  operating  in  the  tourism  sector 
and  limits  its  spill-over  effect  to  other  sectors. 
High  seasonality  is  particularly  problematic  for 
infrastructures  that  tend  to  have  high  running  costs 
irrespective  of  the  utilisation  rate,  such  as  large 
hotels. In December 2015 and January 2016, hotels' 

3 

occupancy rate was below 20%, but in the month of 
August  it  exceeded  98%  –  the  highest  occupancy 
rate in the EU. Beyond the food and accommodation 
industry,  retailers  also  face  challenges  as  well  as 
producers  and  suppliers  of  goods  and  services 
typically demanded by tourists. Orsini (2017) shows 
that the elasticity of imports with respect to tourism 
is in the order of 0.7. The high reliance of Croatia's 
tourism  sector  on  imports  is  explained  by  the 
difficulty  to  expand  production  in  order  to  satisfy 
demand  during  the  short  summer  season.  This  high 
"leakage  rate"  ultimately  limits  the  positive  impact 
of tourism on other domestic sectors. Moreover, the 
structure  of  the  accommodation  sector  (discussed 
below)  is  oriented  towards  less  labour  intensive 
establishments  (private  houses  and  camping).  This 
may explain the relatively low share of employment 
in the tourism sector compared to the overall size of 
tourists'  expenditure  in  GDP.  Moreover,  the  high 
seasonality  does  not  favour  stable  employment 
relationships  throughout  the  year:  roughly  45%  of 
workers  employed  in  the  tourism  industry  are 
temporary workers – by far the highest share in the 
EU. 

Figure  4:  Nights  spent  in  tourist  accommodation  by 
non-residents, by type, 2015 

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Croatia

Italy

Spain Greece Malta Cyprus

Camping grounds, recreational vehicle parks and
trailer parks
Holiday and other short-stay accommodation

Hotels and similar accommodation

Source: Eurostat 

The  majority  of  non-resident  tourist  overnight 
stays  in  Croatia  is  spent  in  private  houses  and 
camping  grounds.  Tourist  accommodation 
in 
Croatia  is  often  provided  in  vacation  homes  or 
rented  rooms  (figure  3).  All  in  all,  the  category 
"holiday  and  other  short-stay  accommodation"  – 
which  includes  this  form  of  privately  supplied 
accommodation  –  accounted  for  more  than  45%  of 

 
 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

and 

similar 

total  tourist  overnight  stays  in  2015.5  Croatia  also 
recorded the highest share of overnights in camping 
grounds, recreational vehicle parks and trailer parks 
amongst  EU  Mediterranean  tourist  destinations.  By 
accommodations 
contrast,  hotel 
accounted for only 30% of stays as opposed to more 
than  65%  in  all  the  peer  countries.  What  is  more, 
private  accommodation  and  camping  grounds 
account  for  the  bulk  of  the  growth  in  the  past  ten 
years. Between 2005 and 2015, tourist overnights in 
these establishments grew by roughly 90% and 30%, 
respectively,  whereas  overnights  in  the  hotel  sector 
increased by a mere 17%.  

Figure  5:  Hotels  and  similar  accommodation  by  size 
class, 2015 

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Malta Croatia Cyprus Spain Greece Italy*

250 rooms or more

From 100 to 249 rooms

From 25 to 99 rooms

Less than 25 rooms

Notes: for Italy the categories "from 100 to 249" and "250 
and above" are merged. 

Source: Eurostat 

industry 

is  dominated  by 

The  hotel 
large 
establishments  in  the  low-mid  price range. Large 
hotels – 100 rooms or more – supply more than 70% 
of total bed places. The category of very large hotels 
–  that  is,  hotels  with  more  than  250  rooms  –  also 
features  a  large  weight  in  the  hotel  offer:  at  well 
above  30%  of  total  beds,  it  is  one  of  the  highest 
shares  amongst  the  countries  considered.  Almost 
60%  of  the  hotel  accommodation  capacity  is  in  the 
mid-range  of  two  to  three  stars.  According  to 
national statistical sources, the share is around 50% 
for Italy, whereas in the case of Malta two and three 
stars  hotels  account  for  only  30%  of  total  capacity. 
This  configuration is  partly  a  legacy  of  the planned 
economy, and still today the state owns a number of 
large  hotel  establishments.  The  predominance  of 
large hotels is also a reflection of the large presence 
of travel operators in Croatia, which typically aim at 

4 

achieving economies of scale. In 2015, some 37% of 
tourist  arrivals  were  organised  by  tour  operators, 
below Malta (44%) and Cyprus (62%) – which also 
feature  large  hotel  establishments  –  but  well  above 
Spain (29%) or Greece (13%).  

Foreign tourists tend to arrive in Croatia by car, 
mainly  from  nearby  EU  Member  States.  Croatia 
benefits  from  a  favourable  geographical  position. 
For  many  EU  countries  in  Central  and  Eastern 
Europe  it  represents  the  closest  access  to  the 
Mediterranean Sea. Indeed, the bulk of international 
tourists comes from Europe (almost 90% of arrivals 
and  over  95%  of  nights  stay),  with  a  handful  of 
countries in the proximity (Austria, Germany, Italy, 
Slovenia, 
the  Czech  Republic,  Slovakia  and 
Hungary)  accounting  for  more  than  two  thirds  of 
arrivals  and  slightly  more  in  terms  of  overnights. 
The  international  demand  for  Croatian  tourism  is 
however  less  concentrated  than  in  some  other 
Northern  Mediterranean  destinations  such  as  Spain, 
Malta  and  Cyprus.  Ease  of  access  implies  that 
international tourists arrive to Croatia mainly by car 
(more  than  90%).  While  this  contributes  to  lower 
travelling  costs,  it  also  leads  to  congestion  at  the 
borders,  as  frequently  shown  by  the  long  queues  at 
the  border  with  Slovenia,  with  negative  impacts  on 
the environment – particularly air quality. The use of 
private  cars  also  means  that  passenger  transport 
services  contribute  to  a  very  limited  degree  to  the 
local economy. Over the past few years the opening 
of  low-cost  flight  routes  have  provided  connections 
to  more  distant  European  countries  (including  from 
Western 
air 
and  Northern  Europe), 
transportation may expand further. At the same time, 
arrivals  by  other  means  of  transport  –  such  as  train 
or  bus  –  have  been  decreasing.  This  is  certainly 
related  to  the  fact  that  Croatia's  railway  network 
remains under-developed and largely inefficient. 

and 

in  Croatia 

tourist  expenditure 

Average 
is 
significantly  below  that  recorded  in  EU  peers 
partly  due  to  lower  prices.  The  price  of  tourism 
services and the characteristics of the tourism model 
largely  determine  tourist  spending.  The  "sun  and 
sea" model is typically associated with lower levels 
of  consumption  and  a  tourist  infrastructure  skewed 
towards  the  mid-low  range.  In  Croatia  the  average 
tourist  spending  per  person  and  night  (computed  as 
the ratio of foreign tourism revenue to the number of 
non-domestic  overnights)  is  around  70%  of  the 
average  for  the  Mediterranean  region.6  Part  of  the 
gap  can  be  attributed  to  the  lower  level  of  prices 
compared 
region.  The 
the  Mediterranean 
dynamics  of  the  price  index  of  hotel  and  restaurant 

to 

 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

services  can  be  taken  as  a  good  proxy  for  the 
evolution of prices of tourist services. Over the past 
15 years, the sub-index for Croatia evolved broadly 
in  line  with  developments  in  other  Mediterranean 
destinations, bar Italy, which experienced somewhat 
slower  growth.  In  terms  of  levels,  however,  prices 
for  comparable  bundles  of  goods  and  services  (in 
2016) were on average 30% lower in Croatia than in 
its peers.7 Furthermore, the average tourist spending 
has  been  decreasing  in  recent  years,  since  the 
number  of 
tourist  arrivals  and  non-residents' 
overnights  have  been  growing  faster  than  tourism 
revenues.  This  trend  is  also  observed  in  other 
countries, 
like  Spain  and  Cyprus,  but  seems 
particularly pronounced in the case of Croatia.  

Figure  6:  Average  expenditure  per  night  per  person 
(Mediterranean region=100) 

120

100

80

60

40

20

0

HR

EL

MT

CY

IT

ES

Source: Eurostat and www.budgetyourtrip.com  

Income and price elasticity of tourism 
demand 

The  bulk  of  econometric  research  on  the  drivers 
of  tourism  is  based  on  the  consumer  behaviour 
theory. The demand for tourism (defined in terms of 
arrivals,  overnights  or  real  expenditure)  is  often 
modelled  as  a  function  of  the  purchasing  power  in 
the  place  of  origin  and  tourism  prices  in  the 
destination  relative  to  prices  in  the  place  of  origin. 
Some studies also include prices of tourism services 
in  competing  destinations  (i.e. 
the  prices  of 
potentially  alternative  locations)  and  transportation 
costs  (Song  and  Li,  2008).  Income  is  proxied  by 
GDP, industrial production or, in some cases, wages, 
while relative prices are proxied by the general price 
level  or  some  sub-index.  The  place  of  origin  refers 

either  to  a  specific  country  or  a  group  of  countries, 
while  the  tourist  destination  is  either  one  single 
country or alternative destinations. In the latter case, 
some  studies  model  how  a  representative  agent 
allocates  the  total  budget  for  tourism  across  the 
different  destinations  (Gatt  and  Falzon,  2014).  All 
these  approaches  ultimately  estimate  income  and 
own-price elasticity, while some also estimate cross 
to  be 
price  elasticities.  These  models 
econometrically more demanding as they rely on the 
specification  of  a  full  demand  system  where  a 
representative consumer allocates expenditure across 
Income 
a  multiplicity  of 
elasticity  measures 
the 
quantity of certain products or services demanded by 
consumers  to  a  change  in  their  income,  while  the 
the 
price 
responsiveness  to  a  change  in  the  prices  of  the 
demanded goods or services. 

tourist  destinations. 
the 

demand  measures 

responsiveness  of 

elasticity 

tend 

of 

Cross  country  differences  in  tourism  models  are 
likely  to  be  reflected  in  different  sensitivity  of 
demand  to  income  and  prices.  Empirical  studies 
have confirmed that tourism is a "luxury good", i.e. 
its  demand  increases  more  than  proportionally  with 
respect  to  income.  Price  elasticities  are  mostly 
negative  and  the  range  of  variation  across  available 
studies  is  often  large  (Song  et  al.,  2010).  In 
principle,  differences  in  elasticities  should  reflect 
structural differences across destinations. Namely, it 
is  to  be  expected  that  tourist  destinations  offering 
easily  substitutable  services  and  amenities  will  in 
general  feature  a  higher  own-  and  cross-price 
elasticity  than  more  unique  destinations.  Similarly, 
expenditure  on  more  exclusive  destinations  should 
increase 
than 
expenditure on less luxurious destinations. 

faster  with  disposable 

income 

Aggregate income elasticities are also affected by 
non-linearities.  Households  with  limited  financial 
resources often do not travel abroad for vacation, yet 
as  their  income  rises  above  a  minimum  threshold, 
they  may  start  spending  on  international  tourism 
services  (most  likely  on  lower-end  destinations).  In 
technical  terms,  expenditure  on  tourism  therefore 
features "non-linearities" with respect to income. At 
aggregate  level,  the  change  in  spending  resulting 
from such threshold effects could yield high income 
touristic 
elasticities 
destinations.8  

lower-end 

even 

for 

Available  studies  on  the  demand  for  Croatian 
tourism  services  have  typically  found  high 
income,  but  weak  price  elasticity.  Despite  the 
importance of the tourism industry in Croatia, there 
its 
is  relatively 

little  quantitative  analysis  of 

5 

 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

that  Croatian 

tourism  demand 

determinants.  Most  available  studies,  e.g.  Mervar 
and  Payne  (2007)  and  Škuflić and  Štoković  (2011), 
find 
is  more 
responsive  to  changes  in  the  income  of  origin 
countries  than  to  changes  in  prices,  exchange  rates 
and 
transportation  costs.  Bellulo  and  Krizman 
(2000)  find  that  tourism  demand  is  determined  by 
permanent  changes  in  the  income  of  tourists,  rather 
than  one-off  or  short-term  shocks  to  their  income. 
According  to  Stucka  (2000  and  2002),  the  income 
elasticity  of  tourists  from  Germany,  Italy,  Slovenia 
and  Austria  ranges  from  0.9  to  6.7,  while  – 
somewhat  surprisingly  –  it  is  negative  for  Czech 
tourists.  Culiuc  (2014)  explores  how  tourists  adjust 
their  vacation  choices  through  changes  along  the 
extensive  margin  –  by  traveling  to  a  particular 
destination  or  not,  as  reflected  in  data  on  arrivals  – 
and the intensive margin – by adjusting the duration 
of  their  stay  in  one  particular  destination,  as 
reflected  in  the  average  length  of  stay.  Concretely, 
two  separate  gravitational 
the  study  estimates 
equations  with  respect  to  arrivals  and  overnights. 
The extent to which tourists adjust the length of their 
stay (demand changes along the intensive margin) is 
subsequently  computed  as  the  difference  between 
the  income  elasticity  of  overnights  and  the  income 
elasticity  of  arrivals.  The  absence  of  a  significant 
difference  between  these  two  indicators  suggests 
that  changes  in  income  significantly  affect  the 
decision to travel abroad and/or to new destinations, 
while they do not impact the decision on the length 
of stay in the same destination. To avoid problems in 
comparing  estimates  across  countries  drawn  from 
different  studies,  we  develop  a  fully  consistent 
econometric 
and 
comparing  the  elasticity  of  demand  for  tourism  to 
Croatia  and  other  Mediterranean  destinations  in  the 
following section.  

framework 

estimating 

for 

International demand for tourism in 
Croatia and the Mediterranean  

travel  costs 

Tourism  demand  is  modelled  as  a  function  of 
purchasing power in the EU, the relative price of 
tourist  services  and 
for  each 
destination  country.  Based  on  a  standard  demand 
function  model,  we  estimate  tourism  demand  by 
using  three  alternative  dependant  variables:  the 
number  of  outbound  tourist  arrivals  ((cid:1846)(cid:3028)),  the 
number  of  outbound  overnights  ((cid:1846)(cid:3042))  and  revenue 
from  tourism  ((cid:1846)(cid:3045)).9  The  independent  variables,  i.e. 
the  purchasing  power  in  the  origin  countries  and 
relative  prices  of  tourism  services,  are  proxied  by, 
respectively,  real  GDP  ((cid:1851)(cid:3006)(cid:3022))  and  the  price  of 

Croatian  restaurant  and  accommodation  services 
((cid:1868)(cid:3009)(cid:3019),(cid:3045)(cid:3028)) relative to the overall level of prices in the 
countries  of  origin,  i.e.  the  HICP  index  ((cid:1868)(cid:3006)(cid:3022)).  We 
also  include  a  proxy  for  transport  costs,  which  in 
line with the bulk of the literature, is defined as the 
ratio  of  the  price  of  liquid  fuels  ((cid:1868)(cid:3006)(cid:3022),(cid:3033)(cid:3048)(cid:3032)(cid:3039))  to  the 
overall  price  level  in  the  country  of  origin.  We  do 
not  model  demand  from  specific  origin  countries, 
but rely on GDP and the price level in the EU as a 
whole,  since  the  bulk  of  tourism  to  Mediterranean 
destinations comes either from the EU or from other 
non-EU European countries whose price and income 
dynamics  tend  to  be  highly  correlated  with  those 
prevailing  in  the  EU.  Moreover,  we  relied  on  a 
standard  modelling  framework  based  on  partial 
equilibrium,  instead  of  the  computationally  more 
demanding  (but  also  more  restrictive)  fully-fledged 
demand  system.  For  Croatia  only  we  also  estimate 
separately  demand  from  the  EU15  and  the  CEE10. 
All variables, including price ratios, are expressed in 
natural logarithms, so that the estimated coefficients 
in the following equation can be directly interpreted 
as elasticities: 

(cid:3037) = (cid:2009)(cid:3037)(cid:1851)(cid:3047)
(cid:1846)(cid:3047)

(cid:3006)(cid:3022) + (cid:2010)(cid:3037)

(cid:3009)(cid:3019),(cid:3045)(cid:3028)

(cid:1735)(cid:1868)(cid:3047)
(cid:1736)

(cid:3006)(cid:3022)(cid:3416)
(cid:1868)(cid:3047)

(cid:1737)

+ (cid:2011)(cid:3037)

(cid:1738)
(cid:1739)

(cid:1740)

(cid:1735)(cid:1868)(cid:3047)
(cid:1736)

(cid:1737)

(cid:3006)(cid:3022),(cid:3033)(cid:3048)(cid:3032)(cid:3039)

(cid:3006)(cid:3022)(cid:3416)
(cid:1868)(cid:3047)

+ (cid:2035)(cid:3047)

(cid:3037),	 

(cid:1738)
(cid:1739)

(cid:1740)

Each  of  the  three  equations  (i.e.  with  j=arrivals, 
overnights, real expenditure) is estimated separately 
for Croatia, Greece, Italy and Spain.10 The equations 
are  estimated  via  Fully  Modified  Least  Square,  an 
approach frequently adopted with series displaying a 
trend – as indeed in this case.  

The  international  demand  for  Croatian  tourism 
is more income elastic than for other destinations 
in  the  Mediterranean  region.  The  econometric 
analysis shows that each percentage point increase in 
GDP in the EU drives the number of arrivals up by 
4.3% in Croatia, 4.0% in Greece, 3.8% in Spain and 
only  2.8%  in  Italy.  This  makes  Croatia  the  most 
the  Northern 
income-elastic 
Mediterranean. 
strong 
performance of Croatian tourism over the last years, 
and the particularly sharp contraction in the years of 
the  crisis.  With  respect  to  overnight  stays,  income 
elasticity is somewhat lower across all countries: 3.7 
for Croatia as opposed to 3.1, 3.0 and 2.1 for Greece, 
Spain and Italy, respectively. For Croatia the results 
are  very  similar  to  the  findings  in  Škuflić  and 
Štoković (2011). 

destination 
also 
It 

in 
explains 

the 

The  difference  between  income  elasticities  for 
arrivals  and  overnights  can  be  attributed  to  the 
different  consumption  patterns  across  tourists 
countries.  Our 
originating 
estimates  appear  in  contrast  with  the  findings  of 

from  different 

6 

 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

Culiuc  (2014),  since  the  income  elasticity  for 
arrivals  is  systematically  (and  mostly  statistically 
significantly)  higher  than  the  income  elasticity  for 
overnights. The analysis in Culiuc (2014), however, 
is  based  on  bilateral  tourism  flows  and  not  on 
aggregate  inflows,  as  in  our  case.  When  estimating 
separately  the  equations  for  the  EU15  and  CEE10, 
income elasticities differ depending on the origin of 
tourists.  However,  for  the  same  origin  aggregate, 

arrivals and overnights elasticities tend to converge. 
The  average  length  of  stay,  moreover,  is  slightly 
higher on average for EU15 than for the CEE10. The 
combination  of  different  elasticities  and  different 
average duration across place of origin suggests that 
composition effects largely explain the gap between 
arrival  and  overnights  elasticity  and  the  "apparent" 
negative  contribution  of  changes  in  demand  along 
the intensive margin. 

Table 1: Income and price elasticity of international demand for tourism in Croatia and other Mediterranean destinations  

Croatia

Greece

Spain

Italy

Croatia (from 
EU15)

Croatia (from 
CEE10)

Arrivals Nights Revenue Arrivals Nights Revenue Arrivals Nights Revenue Arrivals Nights Revenue Arrivals Nights

Arrivals Nights

Income elasticity

Price elasticity 

4.33

3.69

2.05

4.01

3.14

1.60

3.81

2.95

1.88

2.80

2.10

1.16

3.30

3.14

1.19

1.07

-1.85

-1.66

-0.78

-2.17

-2.36

-2.64

-2.03

-2.70

-1.84

-4.90

-3.53

-3.27

-1.94

-2.17

-1.52

-1.41

Cost of travel elasticity

-0.33

-0.27

-0.28

-0.16

-0.18

-0.28

-0.08

-0.11

-0.14

-0.20

-0.10

-0.31

-0.16

-0.24

-0.41

-0.34

Adjusted R2

0.90

0.83

0.52

0.93

0.91

0.79

0.97

0.96

0.79

0.93

0.92

0.65

0.68

0.60

0.79

0.80

Phillips-Ouliaris tau-statistic

-7.93

-8.24

0.00

-4.76

-4.95

-5.23

-3.93

-4.81

-5.80

-4.77

-7.55

-6.79

-7.05

-7.32

-7.18

-8.18

Phillips-Ouliaris z-statistic

-59.35 -60.12

-7.64

-30.47 -32.87 -34.21

-24.11 -32.51 -47.08

-31.32 -58.92 -41.72

-55.79 -57.08

-58.61

-69.79

Notes:  Fully  Modified  Least  Squares,  coefficients  in  bold,  italic  and  underlined  are  significant  at  the  1,  5  and  10%  level 
respectively.  The  sample  includes  52  quarterly  observations  spanning  from  2003  to  2016. 11  The  model  also  includes  a 
constant and a dummy for the post-crisis period from 2008Q3 onwards.  

Source: Eurostat and Croatian Bureau of Statistics, own calculations 

The overall high income elasticity of demand for 
Croatian  tourism  may  be  explained  by  the 
prevailing  socio-economic  characteristics  of  its 
core  tourists.  The  higher  income  elasticity  of 
international  demand  for  Croatian  and  Greek 
tourism  is  somewhat  puzzling  at  first  sight.  Higher 
income elasticity is typically associated with higher-
end  destinations  and  more  sophisticated  tourism 
services, whereas the evidence provided in this study 
suggests  this  is  not  the  case  for  Croatia  (and  to  a 
lesser  extent  Greece).  As  mentioned  above, 
however, it is possible, that when household income 
reaches  a  certain  threshold  a  substantial  number  of 
households start traveling abroad for vacation and a 
relatively  high  share  of  these  "new  international 
tourists"  travel  towards  lower-end  destinations.  We 
should  therefore  apply  some  caution  in  defining 
expectations  on  aggregate  elasticities  solely  on  the 
basis  of  the  characteristics  of  specific  tourism 
services.    Incidentally,  such  non-linear  effects  may 
also explain the lower income elasticities for tourism 
from  CEE10  countries.  Available  statistics  suggest 
that  the  share  of  households  travelling  abroad  for 
vacation  in  CEE10  catching-up  economies  is  still 

well  below  the  share  for  ex-EU15  countries.  It  is 
likely that the income threshold where international 
tourism becomes affordable has not yet been reached 
by a sufficiently large number of households. Rapid 
income  convergence  in  CEE10  is  likely  to  bring 
about  higher  income  elasticity  for  this  segment  of 
tourists in the future. 

is  well 

The  fast  growth  in  previously  untapped  markets 
also  explains  high  income  elasticity.  The  growing 
penetration  of  Croatian  tourism  services  in  new 
markets 
in  Figure  7.  The 
illustrated 
relationship  between  the  growth  in  overnight  stays 
between  2003  and  2016  and  the  initial  position  by 
origin  country  (measured  as  the  logarithm  of  the 
share  of  total  overnight  stays  by  origin  country  in 
2003)  is  strongly  negative  in  the  case  of  Croatia. 
This  means  that  growth  of  Croatian  tourism  is  to  a 
large  extent  driven  by  expansion  into  (previously) 
marginal markets, rather than an increased weight in 
well  established  markets.  The  opening  of  low-cost 
flight connections between Croatia and more remote 
Member  States  has  presumably  supported 
this 
development,  as  it  has  contributed  to  lowering  the 

7 

 
 
 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

stronger 

for  destinations  where 

income  threshold  beyond  which  households  engage 
in  international  travel.  This  effect  is  likely  to  have 
been 
travel 
expenditure  makes  up  for  a  large  share  of  the  total 
expenditure on tourism services. The contrast with a 
well-established  tourist  destination  like  Italy,  which 
features  the  lowest  income  elasticity,  is  striking.  In 
Italy,  the  growth  in  the  number  of  overnights  is 
weakly  correlated  with  the  initial  share  of  tourists 
from different origin countries, and growth in flows 
is  driven  by  proportional  increases  across  countries 
of origin.  

Whereas  diversification  of  origin  countries  is 
welcome, product diversification still lags behind. 
Diversifying  demand  away  from  the  neighbouring 
countries is a welcome development for Croatia. The 

relatively  large  exposure  to  tourists  from  Slovenia 
and  Italy,  for  example,  has  had  a  negative  impact 
during the economic crisis, since both counties were 
heavily affected. Equally important, however, is the 
diversification  in  terms  of  supplied  services,  since 
eventually the demand for existing Croatian "sea and 
sun"  tourism  services  is  likely  to  hit  a  saturation 
point  (Butler,  1980).  Currently  there  is  only  weak 
evidence  of  a  greater  diversification  in  terms  of 
tourism services' supply. Indeed, in Croatia the bulk 
tourism  activity 
of 
remains 
concentrated 
low-medium  cost  private 
accommodation  along  the  coast,  and  the  share  of 
tourists  arriving  in  July  and  August  has  further 
increased in the last two years.   

the  growth  of 
the 

in 

Figure 7: Correlation between initial market share and growth in overnight stays in Croatia and Italy (2003-2016)  

Croatia

1.2

1

y = -0.20x + 0.03
R² = 0.38

0.8

0.6

0.4

0.2

0

-0.2

-4

-3

-2

-1

Initial share

Italy

y = -0.06x + 0.05
R² = 0.08

i

s
t
h
g
n
r
e
v
o
n

i

h
t
w
o
r
G

0

-4

-3

-2
Initial share

-1

1.2

1

0.8

0.6

0.4

0.2

0

0

-0.2

Notes: The dots correspond to the countries of origin to each of the two destination countries. The initial share is expressed in 
natural logarithms to address excessive dispersion. 

Source: Eurostat and Croatian Bureau of Statistics, own calculations 

More than in other countries, tourism revenue is 
driven  by  the  soaring  volumes  of  overnights, 
while  average  spending  is  stagnating  or  even 
decreasing. Our results show that for all four tourist 
destinations,  an  increase  of  income  in  the  origin 
country generates a stronger increase in the number 
of  overnights  than  in  the  volume  of  spending, 
meaning that average spending per night per tourist 
tends to decrease as the volume of tourism increases. 
This  decrease,  however,  is  stronger  in  the  case  of 
Croatia  and  Greece  (1.6  and  1.5  respectively),  than 
in  Spain  and  Italy  (1.1  and  0.9  respectively).  This 
may  be 
to  aforementioned  progressive 
lowering  of  air  fares,  which  opens  up  international 
tourists. 
travel  opportunities 
Technically 
the 
contribution  at  the  intensive  margin  (how  much  to 

less  well-off 

speaking, 

implies 

linked 

that 

this 

to 

spend  on  vacation  per  person)  tends  to  be  negative 
over the considered period of time and countries, but 
the reduction in spending per person was highest in 
Croatia.  

In  the  case  of  Croatia,  decreasing  per-capita 
spending  appears  also  related  to  the  increasing 
share  of  tourists  with  lower  purchasing  power 
from  Central  and  Eastern  Europe.  Composition 
effects clearly play a role. On average, tourists from 
Central and Eastern Europe spend roughly 55% less 
per  night  per  person  than  tourists  from  the  EU15  – 
i.e.  roughly  62  EUR  and  140  EUR  per  night  per 
person  respectively.  Moreover,  in  real  terms,  the 
average  spending  per  night  per  person  of  EU15 
tourists  has  slightly  increased  between  2010  and 
2015,  whereas  it  decreased  by  more  than  15%  for 

8 

 
 
 
 
 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

tourists  from  CEE10  (see  Figure  8).  The  reasons 
behind  this  structural  shift  are  difficult  to  identify. 
Differently from the data on arrivals and overnights, 
available  data  on  revenues  do  not  allow  estimating 
separate  equations  by  country  of  origin  due  to  the 
lack of disaggregated Balance of Payments statistics 
on a quarterly basis. 

Figure  8:  Contribution  to  growth  in  volume  of  tourism 
revenue  in  Croatia  by  volume  of  arrivals  and  increase 
in average spending (per night per person), 2010-2015  

Average spending (per night per person)

Volumes of overnights

Volume of expenditure

60%

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

EU15

CEE10

Other

Source: Eurostat, own calculations  

that 

(EEA)  warns 

A model of tourism which relies on increasing the 
number  of  tourists  can  have  negative  spill-overs 
to  the  environment.  The  European  Environment 
Agency 
tourism  density, 
infrastructure  and  activities  –  especially  in  the 
Mediterranean  –  can  have  irreversible  effects  on 
biodiversity  and  can  result  in  habitat  deterioration. 
Surges  in  the  number  of  tourists  impact  waste 
generation and  energy  consumption  (for  example,  a 
tourist  consumes  3  or  4  times  more  water  per  day 
than a permanent resident). In this respect, according 
to the EEA (2015), the most critical sector that needs 
urgent action is waste management.  

On  the  positive  side,  tourism  in  Croatia  tends  to 
be  less  sensitive  to  changes  in  relative  prices, 
probably  owing  to  limited  substitution  effects 
with  more  pricey  destinations.  Our  findings 
confirm 
in  Northern 
tourism  demand 
Mediterranean  countries  can  be  extremely  sensitive 
to prices. However, Croatia features the lowest price 
the  countries  considered  – 
elasticity  among 
irrespective  of  the  dependent  variable  used  (i.e. 
is 
arrivals,  overnights  or  expenditure).  This 

that 

9 

consistent with previous studies on Croatia which in 
general find small or non-significant price elasticity. 
The price elasticity for tourism revenue in particular 
is  almost  identical  to  the  one  found  in  Mervar  and 
Payne (2002) – despite the very different time period 
and  methodology.  This  specificity  of  Croatian 
tourism  vis-à-vis  other  destinations  is  probably  due 
to  the  persistently  lower  price  level  compared  to 
the 
other  Mediterranean  destinations.  Whereas 
dominant "sea and sun" model remains per se highly 
substitutable,  the  substantial  price  gap  with  other 
destinations  in  the  neighbourhood  is  clearly  a  pull 
factor  –  particularly  for  tourists  from  Central  and 
Eastern  Europe  with  lower  purchasing  power.  It  is 
also worth noting that the price elasticity is actually 
higher  for  EU15  tourists,  possibly  due  to  the  fact 
that for some of them vacations in Croatia are part of 
a  broader  allocation  of  travel  expenditure  across 
different  destinations.  In  general,  the  low  price 
elasticity  is  favourable  for  Croatia,  as  it  suggests 
limited  losses  from  higher  inflation  and/or  an 
appreciation  of  the  kuna.  However,  it  may  also 
indicate  challenges  for  the  further  development  of 
the  sector:  if  Croatia  were  to  climb  up  the  value-
ladder,  prices  would  inevitably  converge  to  the 
levels of other Mediterranean destinations – turning 
tourist demand more price elastic than it currently is. 
This highlights the need to develop a broad product 
differentiation,  capable  of  attracting  a  more 
heterogeneous tourism demand.   

At  the  same  time,  Croatia  is  more  affected  than 
other countries by fluctuations in fuel prices. Fuel 
prices have been subject to extreme fluctuations over 
recent years. The impact of fuel prices on overnights 
and tourist spending appears to be much stronger in 
Croatia  than  in  alternative  destinations.  A  10  pps 
increase  in  the  relative  price  of  fuel  decreases 
arrivals,  overnight  stays  and  spending  by  roughly 
3%.  Elasticities  in  other  countries  tend  to  be  much 
lower for arrivals and overnights, whereas oil prices 
appear  to  have  a  broadly  comparable  impact  on 
overall  spending.  The  higher  elasticity  to  oil  prices 
in  Croatia  is  partly  explained  by  the  high  share  of 
arrivals  by  cars,  but  probably  also  by  the  higher 
share  of  spending  on  fuels 
less  affluent 
households.  An  increase  in  oil  prices  therefore  not 
only increases the cost of travel, but also reduces the 
tourists  visiting  other 
purchasing  power.  For 
Northern  Mediterranean  destinations  this  may  not 
impact  significantly  the  decision  to  travel  or  the 
amount  of  days  spent,  but  rather  average  amounts 
to  Croatia,  however,  react  by 
spent.  Tourists 
reducing  the  arrivals  and  overnights.  Here  too, 
composition  effects  are  relevant:  the  impact  of  fuel 

in 

 
 
 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

prices  is particularly  significant  for  CEE10  tourists, 
but it is not statistically significant for tourists from 
the  EU15.  This  somehow  reinforces  the  hypothesis 
made above: tourists to Croatia, and especially those 
from  the  CEE10  are  not,  in  general,  extremely 
sensitive  to  the  prices  of  services  in  Croatia  due  to 
limited affordable alternatives, but they are likely to 
face more stringent budget constraints. 

Concluding remarks  

the  gradual 

Tourism is a key sector of the Croatian economy. 
The  sector  benefits  from 
income 
recovery in the EU and its relatively low price level, 
but  more  recently  also  from  the  low  energy  prices 
and  the  instability  in  competing  destinations  on  the 
southern  and  eastern  shores  of  the  Mediterranean 
Sea.  The  latter  effect  is  not  explicitly  modelled  in 
this study. In the short to medium run, both arrivals 
and  overnights  are  set  to  keep  growing  strongly  – 
underpinned  by 
into  non-
neighbouring countries and rapidly increasing living 
standards in Central and Eastern Europe.  

further  penetration 

Capacity constraints are likely to be lifted by new 
investment, but concerns about over-exploitation 
of  natural  resources  and  social  impacts  remain. 
While  a  significant  share  of  the  recent  surge  in 
investment  has  been  directed  to  the  food  and 
accommodation  sector,  high  occupancy  rates  in 
summer months suggest that Croatia is approaching 
the  hotel  segment. 
full  capacity,  at 
Developers  need  to  avoid  excessive  exploitation  of 
the coastline, which can be observed in other tourist 
destinations. Beyond environmental concerns, social 
considerations have also recently been brought to the 
fore,  as  excessive  congestions  in  some  destinations 
provoke  backlashes  from  local  residents  who  may 
suffer  from  reduced  access  or  higher  prices  of 
services. 

least 

in 

Excessive  reliance  on  the  current  tourism  model 
may  be  unsustainable.  Tourism 
flows  are 
potentially  volatile  and,  as  other  products  and 
services,  tourism  has  its  own  life  cycle,  and  is 
subject  to  changes  in  preferences  and  demand 
saturation. The attractiveness of Croatia is partly due 
to the fact that the country is being re-discovered as 
a tourist destination. Yet, in the long run all tourism 
destinations  are  exposed  to  risks  of  stagnation  and 
even  decline12.  Currently  Croatia  appears  far  from 
saturation  point,  but 
should  not  be 
risks 
avoid 
Policymakers 
underestimated. 
excessive  reliance  on  the  tourism  sector  in  general, 

should 

10 

while  promoting  its  diversification.  This  could  also 
result in  a stronger impact of the tourism sector on 
the  overall  economy,  as  the  currently  low  level  of 
average  spending  and  high  seasonality  are  likely  to 
dampen  the  multiplier  effect  on  other  domestic 
sectors.  

targets  of 

the  quantitative 

the  differentiation 

The Croatian authorities are aware of challenges 
and opportunities, but differentiating away from 
the  dominant  sun  and  sea  model  is  proving 
difficult.  A  SWOT 
(Strengths,  Weaknesses, 
Opportunities  and  Threats)  analysis  is  part  of 
government's  2013  tourism  development  strategy, 
which  is  meant  to  frame  government  tourist  policy 
up  to  2020.  The  authorities  have  identified  vertical 
(i.e.  quality)  and  horizontal  (i.e.  type  of  tourism) 
dimensions in diversifying Croatia’s tourism model. 
the  strategy 
While 
(revenue generation and employment) appear within 
reach, 
lagging  behind. 
According  to  a  longitudinal  survey  of  tourists' 
attitudes,  the  primary  motive  for  coming  to  Croatia 
during the summer remains rest and relaxation at the 
seaside  (75%),  broadly  unchanged  since  2010, 
which  highlights  the  difficulties  in  establishing  a 
stronger  brand  for  a  different  typology  of  tourism 
(Institute  for  Tourism,  2015).  This  calls  for  a 
reinforced  implementation  of  supporting  measures: 
leveraging  Croatia's  historical  heritage,  the  touristic 
development  of  inland  cities  and  natural  beauties, 
the  development  of  gastronomic  tourism,  wellness 
and  health 
tourism.  The  supply  of  new  and 
differentiated tourism services could reduce the risk 
of stagnation and maximise the impact on the overall 
economy.   

is 

Public  institutions  can  play  an  important  role  in 
fostering  the  competitiveness  of  the  Croatian 
tourism  industry.  Tourism  demand  is  becoming 
increasingly sophisticated and managing tourism on 
all levels of decision making is therefore ever more 
complex.  Public  institutions  at  the  central  and  local 
level  play  a  key  role  in  enhancing  the  cooperation 
between  the  public  sector,  private  sector  and  the 
local population in the offer of tourism services, thus 
guiding tourism development. Besides the efforts to 
differentiate  the  offer,  other  challenges  of  Croatia's 
tourism – which have not been analysed in this study 
–  relate  to  an  inadequate  stakeholder  involvement 
local 
and  coordination, 
government 
and 
unskilled human resources13. In order to support the 
further  development  of  the  Croatian  tourism  sector, 
addressing  existing  challenges  in  terms  of  human 
and 
and 
coordination appears warranted.  

fragmentation  of 
funding 

governance 

insufficient 

resources, 

financial 

levels, 

the 

 
 
 
 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

References  

Bellulo,  A.,  Križman,  D.,  2000.  Utjecaj  promjena  u  dohocima  glavnih  emitivnih  zemalja  na  turistički  promet  u 
Hrvatskoj  (Impact  of  Income  Changes  of  Major  Tourist-  Generating  Countries  on  the  Performance  of  Croatian 
Tourism). Ekonomski pregled, 51(7-8), 681-699. 

Bosnić, I., Stanišić, J., Tubić, D., 2014. Role of destination management in strengthening the competitiveness of 
Croatian  tourism.  Ekonomski  vjesnik  /  Econviews:  Review  of  contemporary  business,  entrepreneurship  and 
economic issues, XXVII, I, 154-170.  

Butler,  R.W.  (1980)  The  concept  of  the  tourist  area  life-cycle  of  evolution:  implications  for  management  of 
resources. Canadian Geographer 24 (1), 5-12 

Čorak  S.,  Živoder  S.B.,  2017.  Tourism  Destination  and  DMO  Transformation.  In:  Dwyer  L.,  Tomljenović  R., 
Čorak S. (eds). Evolution of Destination Planning and Strategy. Palgrave Macmillan, Cham 

Culiuc, A., 2014. Determinants of International Tourism. IMF working paper, WP/14/82. 

Eugenio-Martin,  J.,  Campos-Soria,  J.,  2011.  Income  and  the  substitution  pattern  between  domestic  and 
international tourism demand. Applied Economics, 43(20), 2519-2531. 

European  Environment  Agency  (EEA),  2015.  The  European  Environment  –  State  and  Outlook  2015.  European 
Briefings.  

Gatt, W., Falzon, J., 2014. French and German tourism in the Mediterranean - A market share analysis. Journal of 
Tourism and Recreation, 1(1), 21-36. 

Institute for Tourism, 2015. Attitudes and Expenditures of Tourists in Croatia – TOMAS Summer 2014. Zagreb, 
Croatia. 

Kapusta  A.,  Wiluś  R.  (2017)  Geography  of  Tourism  in  Croatia.  In:  Widawski  K.,  Wyrzykowski  J.  (eds)  The 
Geography of Tourism of Central and Eastern European Countries. Springer, Cham 

Kranjčević J., 2017. Abandoned Tourism Resorts in Croatia: The Consequences of Discordant Spatial Planning 
and  Tourism  Development  Policies.  In:  Dwyer  L.,  Tomljenović  R.,  Čorak  S.  (eds)  Evolution  of  Destination 
Planning and Strategy. Palgrave Macmillan, Cham 

Ministry of Tourism of the Republic of Croatia, 2013. Tourism Development Strategy of the Republic of Croatia 
until 2020.  

Mervar,  A.,  Payne,  J.  E.,  2002.  A  Note  on  Modelling  Tourism  Revenues  in  Croatia.  Tourism  Economics,  8(1), 
103-109. 

Mervar,  A.,  Payne,  J.  E.,  2007.  Analysis  of  Foreign  Tourism  Demand  for  Croatian  Destinations:  Long-Run 
Elasticity Estimates. Tourism Economics, 13(3), 407-420. 

Orsini, K., 2017. What drives Croatia’s high import dependence? European Commission, Directorate General for 
Economic and Financial Affairs, Economic Brief, 29.  

Škuflić, L., Štoković, I., 2011. Demand Function for Croatian Tourist Product: A Panel Data Approach. Modern 
Economy, 2, 49-53.  

Song, H. and Li, G., 2008. Tourism Demand Modeling and Forecasting: A Review of Recent Research. Tourism 
Management, 29(2), 203–220. 

Song,  H.,  Kim,  J.,  Yang,  S.,  2010.  Confidence  intervals  for  tourism  demand  elasticity.  Annals  of  Tourism 
Research, 37(2), 377–396. 

11 

 
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

Stučka, T., 2000. OLS model fizičkih pokazatelja inozemnog turističkog prometa na hrvatskom tržištu (Physical 
Indicators of Foreign Tourist Activity in Croatia: OLS Model). Istraživanja, I-7, Croatian National Bank. 

Stučka,  T.,  2002.  Usporedba  dvaju  ekonometrijskih  modela  (OLS  i  SUR)  za  prognoziranje  dolazaka  turista  u 
Hrvatsku  (A  Comparison  of  Two  Econometric  Models  (OLS  and  SUR)  for  Forecasting  Croatian  Tourism 
Arrivals). Istraživanja, I-11, Croatian National Bank. 

World Economic Forum, 2015. The Travel & Tourism Competitiveness Report 2015.  

1  During  Croatia's  independence  war,  tourism  collapsed.  In  1990,  Croatia  recorded  over  50  million  overnights  by  foreign 
tourists, but by 1991 the figure had dropped to just above 10 million. 

2  In  accounting  terms,  tourism  is  not  a  sector  per  se,  but  rather  a  set  of  activities  across  different  industries  ranging  from 
travel, retail, food and accommodation services and public services. As such its size is best measured by the expenditure by 
non-residents when travelling to the country, which is typically registered as the "travel sub-balance" in the export of services 
in BOP statistics. This figure possibly underestimates the total expenditure of non-resident tourists in the country, since it does 
not include transport services. As all exports, expenditure by tourists does not contribute to GDP by its equivalent amount – 
since  a  large  share  of  tourist  demand  is  also  met  by  imports.  Orsini  (2017)  for  example  estimates  the  import  elasticity  of 
tourism at roughly 0.65, meaning that for every EUR flowing into the country from tourism, 65 cents flow out again in the form 
of higher imports. 

3  Employment  in  the  tourism  industry  is  derived  from  the  Eurostat  database  on  tourism  (tour_lfsa)  and  is  measured  as 
employment  in  the  following  industries:  (i)  food  and  accommodation,  (ii)  air  transport  and  (iii)  travel  agencies,  tour 
operators,  reservation  services and  related  activities.  For  the  purposes  of  our  analysis,  we  adjust  this  figure  for  the  share  of 
international  overnights  in  the  total  number  of  overnights  (i.e.  domestic  and  international).  The  correction  is  important  for 
Italy  and  Spain,  which  feature  significant  flows  of  domestic  tourism.  By  contrast,  the  correction  factor  is  very  small  for  the 
other economies, given the almost negligible size of domestic tourism in overall tourism. In particular, in Croatia, the share of 
domestic tourism was less than 8% in 2016. 

4 The available data on arrivals and overnights however do not distinguish between tourism proper and business travel. 

5 This accommodation typology (NACE Class 55.2) includes the provision of accommodation, typically on a daily or weekly 
basis,  principally  for  short  stays  by  visitors,  in  self-contained  space  consisting  of  complete  furnished  rooms  or  areas  for 
living/dining and sleeping, with cooking facilities or fully equipped kitchens. This may take the form of apartments or flats in 
small  free-standing  multi-storey  buildings  or  clusters  of  buildings,  or  single  storey  bungalows,  chalets,  cottages  and  cabins. 
Very minimal complementary services, if any, are provided (Eurostat). According to the Croatian Ministry of Tourism, which 
provides further disaggregated figures, in 2015 international tourists spent 38% of overnights in private rooms and around 2% 
in tourist apartments (MOT, 2015). 

6  The  figure  is  not  adjusted  for  Purchasing  Power  Parity,  since  it  is  assumed  that  tourists  are  mainly  concerned  about  their 
aggregate level of spending on tourist services rather than the prices of other local goods/services.  

7  The  figure  is  derived  from  the  website  www.budgetmytrip.com,  which  publishes  survey  based  average  prices  for  a 
comparable bundle of goods in a number of touristic destinations.  

8  Eugenio-Martin  and  Campos-Soria  (2011)  model  the  role  of  income  in  the  decision  of  travelling  abroad  or  spending  the 
vacation  in  the  home  country.  They  find  the  existence  of  income  thresholds  above  which  individuals  start  substituting 
domestic with international travel. It is also possible that similar thresholds exist between different classes of destinations. 

9  Revenues  from  tourism  come  from  Balance  of  Payment  statistics.  Nominal  values  are  deflated  using  the  price  index  of 
restaurant and accommodation services. 

10 Unfortunately, estimates for Malta and Cyprus failed to deliver consistent results – possibly due to the importance of other 
variables, such as air transportation costs. 

11  Quarterly  figures  for  arrivals  and  overnights  by  outbound  tourists  have  been  aggregated  from  monthly  data  and 
seasonally adjusted using the X12 routine. All data, including GDP, prices and tourism expenditure from BOP statistics come 
from  EUROSTAT.  The  only  exception  is  data  on  arrivals  and  overnights  for  Croatia  which  come  directly  from  the  national 

12 

 
 
 
                                                        
 
 
European Economy Economic Briefs                                                                      Issue 036 | March 2018  

source.  The reason for  this is  that  EUROSTAT definition for arrivals and overnights initially excluded arrivals and overnights  in 
privately supplied accommodation. This resulted in a negligible break in the series for the other countries, but in a significant 
shift in the number of arrivals and overnights in Croatia. 

12 Butler (1980) has identified different development stages in the life cycle of a tourist destination: exploration, involvement, 
development, consolidation and stagnation – eventually followed by either rejuvenation or decline. 

13  For  more  details,  please  refer  to  the  following  studies:  Bosnić,  Tubić  and  Stanišić  (2014);  World  Economic  Forum  (2015); 
Čorak and Boranić-Živoder (2017); and Kranjčević (2017).  

13 

 
 
 
                                                                                                                                                                                        
 
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