Foreign Direct Investments and Tourism: Empirical Evidence From Turkey

Elma Satrovic, Adnan Muslija

Abstract


This study investigates the nature of causal relationship, if any, between tourism (TOUR) and foreign direct investments (FDI) using the case of Turkey. The observed period is between 1995 and 2015. In order to examine the existence of cointegration between the selected variables, the Johansen test for cointegration is applied. Moreover, the study applies the Granger causality procedure in a vector autoregression (VAR) model in order to estimate the relationship between the variables and the direction of relationship. VAR model is estimated following AIC information criteria that offers 5 lags. Findings indicate that the null hypothesis on no cointegration between the variables can be rejected. Therefore, evidence on the long run relationship between FDI and TOUR in Turkey can’t be rejected. In addition, Granger causality test indicates a positive relationship running from FDI to TOUR. Besides that, a positive relationship running from TOUR to FDI is also reported. Therefore, the Granger causality test indicates a bidirectional relationship between FDI and TOUR in Turkey in the short run.


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