Tourism and FDI-Growth Nexus in Upper-Middle Income Countries

Abstract

This paper examines the role of tourism in foreign direct investment-growth relation in upper-middle income countries. We deploy static and dynamic panel analysis to evaluate how tourism indicators influence the impact of FDI net inflows on growth using an unbalanced panel data on 29 upper middle-income countries from 2010-2019. The tourism indicators are receipts, arrivals and expenditures. The results from static and dynamic analyses indicate that for the most part (1) FDI and tourism exert asymmetric effects on growth, (2) tourism indicators reduce the negative effect of FDI on growth, (4) trade openness is a positive and significant predictor of growth, and (5) domestic credit negatively contributes to growth. Deductively, results evidence that tourism indicators are critical drivers of economic growth in upper middle-income countries. Overall, tourism receipts show the largest influence on FDI to spur the most appreciable impact on growth. Despite this, the fact that tourism indicators cannot completely eliminate the destructive impact of FDI on economic growth shows that tourism development policies should be based on a greener and sustainable ground, taking into account the effects of the coronavirus.