The Impact of Foreign Direct Investment and Domestic Investment on Tourism in Pakistan

Abstract

The current study considers the relationship of tourism with foreign direct investment and domestic investment in Pakistan. The study used time series data, which covers the period from 1990 to 2021 for the proposed variables of tourism receipts measured as the percentage of exports, foreign direct investment, gross fixed capital formation as a proxy for domestic investment and the control variables of domestic credit and trade openness. Johansen’s co-integration test and FMOLS are used in the study. Johansen’s co-integration test shows that the variables are co-related in the long run for Pakistan. The results of FMOLS show negative results. Further, the control variable of domestic credit to private sectors showed a positive relation with tourism receipts, although their relationship was insignificant. The variable of trade openness is also a vital factor in increasing tourism in the country. The result of the study implies that Pakistan should facilitate the tourism sector with domestic investment as the formation and re-innovation of the sector can attract foreign investment.