Abstract
This paper presents a model for explaining the international tourism flows to Madrid. The study is based primarily on examining the main characteristics of inbound tourism flows to Madrid in terms of its structure, evolution and composition by countries of origin of the visitors. According to the general principles of economic theory and the classic literature on tourism demand, a description of the main factors to be considered in determining tourism flows is presented. In the second part of the paper, by using data corresponding to 25 countries of origin and 16 years (1985–2000), an econometric (panel data) model is used to estimate the quantitative relationship between the level of inbound tourism to Madrid and its determinants. The model selected has been subject to a battery of diagnostics in order to test the validity of the assumptions that underlie the estimation. By using the Im–Pesaran–Shin test for unit roots the null hypothesis of non‐stationarity of residuals is rejected and it is concluded that the model can be used for inference. The results show that income of the countries of origin of the travellers and costs of living of the tourists in Madrid relative to the costs of living in the origin country were among the most important factors of the international tourism demand. An interpretation of the results in terms of elasticities is presented in the last part of the paper, as well as their implications for tourism policy. Copyright © 2004 John Wiley & Sons, Ltd.