Analysing the relationship between foreign real estate investment and tourism development

ABSTRACT

The primary aim of this research is to analyse the effect of Foreign Real Estate Investment (FREI) on tourist development using a panel dataset of 33 countries over the time period 2000–2016. Given the potential dynamic and endogenous relationship in the FREI-Tourism development nexus, this paper employs a Panel Vector Error Correction Model (PVECM) and a comparative analysis is further conducted by segregating the sample into sub-samples of developed and developing countries. The empirical results indicate that FREI is positively significant, although to varying extent, in explaining tourist growth. There is also evidence of reverse causality, as tourism is observed to also affect FREI in a positive and significant way, at least in the long run. This study is believed to contribute to the debate by bringing additional evidences in the developing countries context while also analysing the link between tourism development and FREI in a comparative setting of developed countries and developing countries.

KEYWORDS:

• Foreign real estate investment
• tourism development
• panel VAR
• FDI
• developed and developing countries

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 It is noteworthy, however, that Willem te Velde and Nair (2006) who investigated the link for the case of nine Caribbean countries for the period 1997 to 2003, could not establish any significant relation between tourist arrivals and FDI flows.

2 FREI includes FDI inflows in the real estate sector of the recipient county. It includes acquisition of real estate properties, land as well as investment in hotels and villas among others.

3 Such countries includes: Cyprus, Malta, Singapore, Indonesia, Philippines, Mauritius, Fiji, Dominican Rep., Vietnam, China, UAE, Thailand

4 https://stats.oecd.org/viewhtml.aspx?datasetcode=FDI_FLOW_INDUSTRY&lang=en#