Modelling The Predictable Uncertainty In British And German Tourist Arrivals To The Balearic Islands

International tourism is an important source of service exports to Spain and its regions, particularly the Balearic Islands. Tourism is the major industry in the Balearic Islands, accounting for about 85% of GDP (see Riera, 2003). This paper examines the time series properties of international tourism demand to the Balearic Islands. The data set comprises monthly figures from two leading tourist source countries, namely UK and Germany, for the period January 1987 to October 2003. Tourist arrivals and the associated volatility (or uncertainty) of monthly tourist arrivals are estimated for the two data series. The univariate models estimates suggest that (log) British tourist arrivals are stationary around a linear trend with stable seasonal patterns whereas (log) German arrivals are non-stationary, both in the trend and in the seasonal pattern. Moreover, conditional volatility models provide an accurate measure of uncertainty in monthly tourist arrivals from the UK and Germany. The estimated conditional correlations indicate that the two markets were segmented, so that (the logarithm of) tourist arrivals from both the UK and Germany should be considered in any tourism marketing and management plans for the Balearic Islands.