The Granger Causality Relationship between FDI, GDP and International Tourist Arrivals – Empirical evidence from 5 countries

The study attempts to test a hypothesis and explore some additional empirical evidences of a causal relationship between International Tourist Arrivals, Foreign Direct Investment (FDI) and Economic Growth (GDP). Although tourism has been regarded as one of the most dynamic economic industries in the world, the previous studies of the causality between three variables are exceptionally rare. In order to narrow the gap of literature, this research presents a methodology for examining the causal relationship among International Tourist Arrivals, FDI and GDP in a group of European countries including Italy, Spain, Germany, Turkey and the United Kingdom. By using annual data for the period of 1980-2012, the results reveal that there is an impact of FDI and GDP on International Tourist Arrivals in Spain. Correspondently, Granger causality analysis finds out the short-run interaction between FDI and International Tourist Arrivals in Italy and Turkey as well as GDP and FDI in the United Kingdom. Major implications are discussed in the study.