THE DEVELOPMENT OF TOURISM AND FOREIGN DIRECT INVESTMENT: CO-INTEGRATION AND GRANGER CAUSALITY TEST IN TEN MAIN TOURISM DESTINATIONS

Purpose – Most developing countries are lacking in funds for the development of their countries particularly in sectors that require a huge amount of fund such as the development of the tourism industry (ARR). One of the major sources of fund is from the Foreign Direct Investment (PLA). Thus, the objective of this study is to identify the existence of the relationships between FDI and ARR for 10 major world tourist destinations, namely France, Spain, the United States of America, China, Italy, the United Kingdom, Germany, Turkey, Mexico and Malaysia for the period of 30 years from 1978 to 2008. Design/Methodology/Approach – Co-integration and Granger Causality Test method within the ARDL framework was adopted in this study since this method allows shorter time series data to be used and at the same time it allows the application time series data with diff erent levels of stationarity. [I(0) and I(I)]. Findings – Research findings showed the existence of the long-runrelationships or there was cointegration between FDI and ARR in all the countries. In the short-run the causality test was applied and found ARR was signifi cant in infl uencing FDI in France, Mexico, the United Kingdom and Malaysia. It also found that only in France, Mexico and the United Kingdom, FDI was significant in influencing ARR in the short-run. For other countries, namely Germany, Italy, Spain, Turkey, the USA and China both variables-PLA and ARR-do not have any relationships in the short-run. Originality/Value – Findings from this research can be used as guidance to policy makers and other stakeholders in stimulating the development of the tourism industry.