Does foreign direct investment accelerate tourism and economic growth within Europe?

Abstract

It is believed that Foreign direct investment (FDI) leads a country's overall development, including tourism development in many countries, but mixed empirical results have been obtained in a long-standing debate. This paper investigates the direct and indirect effects of FDI on the economic growth of seven European Union (EU) countries with remarkable shares of tourism receipts and FDI in their economies. The high level of GDP shares of tourism receipts and FDI in these countries indicates that policy makers consider tourism receipts and FDI as critical factors in accelerating the economic growth. By employing impulse responses function as a complement of Block Exogeneity Wald test, this study proves that it might be wishful thinking. FDI has a negative impact on the economic growth of five of these countries and surprisingly stimulates tourism industry in none of the countries of our sample.