Determinant factors influencing international tourism demand for

Montenegro

Introduction
The importance of tourism sector to Montenegro, as a strategic economic development tool is
clearly evident from the decisions taken at the highest levels of government to prioritize the
industrys development. Tourism is seen as the prosperity engine, accounting for 20% of
national GDP, and generating almost 32,000 jobs, what is about 18,5 of total employment.
Visitor exports generated 54.3% of total exports in 2014. This is forecast to grow by 7.0% in
2015, and grow by 8.0% pa, from 2015-2025, to 51.6% of total in 2025. Travel & Tourism
investment in 2014 was 30.1% of total investment. It should rise by 15.6% in 2015, and rise
by 8.2% pa over the next ten years to 53.2% of total 2025. (WTTC, 2015). This underlines the
attraction Montenegros tourism industry now holds for the markets and how valuable our
nature resources are in economic terms. So tending to our landscape and nature is vital as a
dictate of reason and not the outgrowth of some vague Romanticism. They are our basic
capital.

Its contribution to GDP has increased steeply over the past eight years, driven by fast growth
in foreign visitor arrivals and tourist-related investment. Nevertheless, further rapid growth is
expected over the coming period with significant implications on employment, further
investments, and export. Montenegro, as a tourism destination is committed to providing a
high quality service for the tourists. In this sense, the use of rare natural resources is carefully
managed and monitored. In order to achieve the strategic objectives in sustainable tourism
development in the future, Montenegro has invested much effort to shift its focus from
traditional package to tour holidays in coastal regions in order to create a higher-yield tourism
product.

Montenegro strongly bases its economy on tourism, which was officially proclaimed as
developing priority. A destinations strategic goal is steady as possible product consuming
among three main regions (coastal, central and northern) throughout the whole year.
Therefore, a big challenge is time and spatial dispersion of demand (see Montenegro tourism
development strategy to 2020, p. 36). However, prior to any demand management, a vital step
is to predict the dynamics of demand, especially according to number of arrivals and number
of overnight stays. This is the aim of this study, to provide the data about demand flows in the
near future, which can be used in managerial governance.

Montenegro Tourism Development Strategy to 2020 set as its goal the creation of a
sustainable, high quality and diverse tourism product to enable the growth of revenues and
arrivals, at the same time generating new jobs and increasing the standards of living. It places
emphasis on sustainability, so particularly important in tourism sector since Montenegrin
tourism product needs to be based on exclusive natural and cultural attractions implying the
natural surrounding and diverse historic and cultural heritage concentrated over a small area.
The Masterplan offers realistic projections of growth in nights, arrivals and revenues
identifying the need to implement short-term, medium-term and long-term measures as a
precondition for attaining the set targets. In addition, the Masterplan offered a basis for annual
economic policymaking over the previous period, through the Governments Economic Policy
Agenda 2002 to 2007 in the sector of tourism, utilities and transport, development of spatial
plans, National Sustainable Development Strategy and a number of other documents
(Masterplan, 2001).

With increasing globalization of today's world, the tourism industry continually gets more and
more competitive. The decision makers of various tourist destinations often compete in
outsmarting each another in attracting more tourists into their respective countries. For this
reason, identifying the main determinants that inuence the number of tourists visiting a
particular country correctly can be a major concern of both tourism demand researchers and
tourism practitioners. The importance of tourism and substitute prices (tourism prices in
competing destinations) serves as a great example. Suppose say tourism and substitute prices
are proven significant among determinants of tourism demand of a certain country. That
should trigger a concern over the current pricing strategies of its tourism competitors. By
paying attention to those strategies, a country can promptly react to any prospective change
by, for example, launching a self-promotion campaign and thus sustaining its position among
competitors (Song and Li, 2008).

This study focuses on the demand side of tourism. Its main purpose is to identify the main
determinants of international tourism demand to the Montenegro.

In general, the international tourism demand model, which is based on classical economic
theory, is typically estimated as a function of tourists income, tourism prices in a destination
relative to those in the origin country, tourism prices in the competing destinations (i.e.
substitute prices), exchange rates, transportation cost between destination and origin, as well
as dummy variables on various special events and deterministic trends (e.g. Barry and
OHagan, 1972; Loeb, 1982; Stronge and Redman, 1982; Uysal and Crompton, 1984; Smeral,
1988; Di Matteo and Di Matteo, 1993; Crouch, 1994; Lim, 1999; Croes, 2000; Vanegas and
Croes, 2000; Song et al., 2003; Chu, 2004; Li et al., 2005; Song and Witt, 2006; Wong et al.,
2007; Chu, 2008; Song and Li, 2008). It postulates that factors of income and price are likely
to play a central role in determining the demand for international tourism. As international
tourism is generally regarded to be a luxury commodity or service, it is not surprising that the
study of such variables has dominated past research. There are three reasons why the
discussed economic framework needed to be extended. First, from the consumers
perspective, travelling is one of the many options for them. Once a decision to travel has been
made, a consumer (tourist), faced with different alternatives, chooses a destination to
maximise utility. The tourist derives utility from spending time in a particular destination. The
utility stems from destinational attributes such as an agreeable climate, beautiful scenery
and/or socio-cultural features. These attributes are consumed along with other goods and
services available at the destination. The tourists utility function represents the preferences
for travelling abroad along with other goods and services. This suggests that the choice of
destinations is a typical consumer choice problem (Rugg, 1973; Divisekera, 1995). In this
vein, Naude and Saayman (2005) have devised a utility function based on hotel capacity, air
distance, political stability, urbanisation rate, etc. to estimate the tourist arrivals to Africa. It

was done using the regression analysis on a

cross-sectional data of fi ve-year averages from

1996 to 2002.

*** (2001) Strategija razvoja turizma Crne Gore do 2020, Masterplan, Podgorica, 2001.

*** (2015) Travel and Tourism: Economic Impact, Montenegro, WTTC.