Foreign Direct Investments and Tourism: A Cross-Sectional Analysis

Abstract

ABSTRACT This study investigates the effect of foreign direct investments (FDI) on tourism using cross-sectional data for 135 countries and their high- and middle-income subgroups. The study takes three different tourism performance indicators into account: travel and tourism GDP, international tourism receipts, and international tourist arrivals. The findings support that FDI positively affects all three tourism performance indicators. Furthermore, this effect is observed to be at the highest level on the international tourism receipts and at the lowest level on travel and tourism GDP. These results indicate that FDI affects international tourism considerably more than it does domestic tourism; it also boosts the tourism sector of the host countries in terms of brand value or market power. In addition, the results for the high- and middle-income countries are in accordance with the theoretical expectations of neoclassical economics in that FDI affects tourism more in middle-income countries.