The Relationship between FDI and Tourism Growth: A Case Study of China

According to the World Tourism Organization (WTO), in 2019, the tourism sector generated US$1,733 billion in export revenue, which is around 7% of the world exports of goods and services. During the same year, 1462 million tourists travelled around the world. With globalization, tourism has become a major export sector in many countries. While the tourism sector generates income, taxes, foreign exchange earnings and employment (Choi & Sirakaya, 2006; Dwyer & Forsyth, 2008), it also creates the same through multiplier effect on a number of other sectors of the economy, such as transport and communication, construction, education, health, retail and services, eventually leading to increased overall economic growth in most countries. One of the key elements for a successful tourism sector in a country is having good quality tourism related infrastructure, such as hotels, restaurants, transport, communication, highways etc. Most countries, especially developing countries, do not have the resources to invest in tourism related infrastructure and hence they heavily depend on Foreign Direct Investment (FDI). Naturally, FDI plays a significant role in the growth of the tourism sector. Several studies in the tourism literature have analysed the relationship between tourism and economic growth and reported that tourism positively affects economic growth (also known as tourism-led economic growth hypothesis). Some other studies found a significant relationship between tourism and trade. However, due to lack of FDI data at the sectorial level, there are not many published studies available that analyse the relationship between FDI and tourism growth. This study aims to fill that gap by analysing the relationship between FDI and tourism growth, in the case of China.