HOW DOES TOURISM AFFECT FOREIGN DIRECT INVESTMENTS AND SPILLOVERS: EVIDENCE OF TAIWAN

Abstract

This study finds that the increase of inbound tourists increases both the tourism-related, non-tourism-related foreign direct investment (FDI), and total FDI during the year of 1996-2007 in Taiwan, but it only increases the non-tourism-related and total FDI during the year of 2008-2015. It strong suggests that the increases of inbound tourists could enhance the FDI inflows, either in tourism-related or non-tourism-related industries, which makes itself a good policy instrument for government to attract FDI (and to stimulate the economy). This finding resembles the study of Japan (Tomohara, 2016). On the contrary, the increase of immigrants decreases the FDI for tourism-related and non-tourism-related industries, and for total FDI, which implies the policy of intensive imports of lower-level labors may not help the attraction of FDI inflows. Lastly, in the period 1996-2007, it is surprising that a higher evaluation of governance performance impedes the tourism FDI inflows, supporting the helping hand hypothesis of corruption on FDI in the literature. The findings will prompt regulators to be aware of the effectiveness of the adoption of public policy.