The threshold effect of tourism economy development on the relationship between FDI and SIDS’ inclusive growth

Abstract

ABSTRACT Overseas investment and tourism economy development play important roles in the inclusive growth of small island developing states (SIDS). Taking the level of tourism economy growth as a threshold, this study explores the relationship between China’s FDI to 29 SIDS and SIDS’ inclusive growth from 2005 to 2020. This connection is investigated via the entropy method, a panel autoregressive model, and a panel threshold regression model and data from the World Bank and the Ministry of Commerce of China. Several findings emerge: (1) SIDS’ inclusive growth index demonstrated an upward trend, with PROFIT-type SIDS’ inclusive growth being highest; (2) China’s FDI to SIDS could effectively promote SIDS’ inclusive growth; and (3) tourism economic growth had a threshold effect and region–type heterogeneity within the process of FDI and SIDS’ inclusive growth. The positive impact of China’s FDI on SIDS’ inclusive growth rose by 42.308% when SIDS’ tourism receipts (% of GDP) reached 25.950%. The threshold effect was strongest in the AIMS region and was not significant in the Pacific region. A double-threshold effect applied to PROFIT-type SIDS. Additionally, the threshold effect was strongest in SITEs-type SIDS and was not significant in MIRAB-type SIDS.