The thesis consists of two new paradigms: Porter's (1990) Determinates of National Advantage Theory, and Krugman's (1992) Location and Trade Theory. The main objective in this thesis is to focus on the development strategies for the small island states through the role of tourism. Bulter's (1980) Tourist Area Life Cycle is implemented on the Isle of Man and North Cyprus as a descriptive study. We modified Witt and Martin's (1987) econometric model and applied on tourism demand analysis for six destination countries (Malta, the Isle of Man, North Cyprus, Turkey, Austria and the UK). The number of tourist arrivals in per capita form are estimated in this thesis. The explanatory variables such as, income, cost of living, exchange rates, air fares and surface travel costs are included in a model for estimation. We also included dummies, trend and habit persistence variables in our estimation analysis. We used cointegration analysis to see the long-run economic relationship on the number of tourist arrivals. Forecasting tourism demand has also been studied in this thesis and we used RMSE to decide the best forecasting method for 5, 2 and 1 year ahead forecast horizon. HW was found the best forecast method and Econometric forecast did not perform well due to several reasons. Finally, the aims and hypothesis are explained and related policy implications are developed.