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The Relationship between Economic Activity and Tourism Demand in Croatia: The VEC Model

The goal of the research is to determine the important characteristics and the relationships between the number of bed-nights of domestic and foreign tourists in Croatia, along with the overall economic activity of Croatia in the sense of Granger causality, analysis of dynamics and innovation analysis. Vector error correction model is used in order to identify shocks on the basis of monthly data. To empirically estimate the relationships among data, time series analysis including the analysis of autocorrelation and partial autocorrelation functions was conducted, as well as the unit root tests, vector autoregression, Granger causality test and vector error correction model. The results indicated the existence of the cointegration of the variables, which led to the specification of the VEC model. The results of the conducted research indicated the increase in GDP would lead to the increase in the number of bed- nights of domestic tourists, which can be ascribed to the development of the positive economic climate and the increase of incomes of the inhabitants, which in turn they are inclined to use on non-essential goods such as travel.

bed-nights of domestic tourists, bed-nights of foreign tourists, Granger causality, vector error correction model

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