Analysing the impact of tourism foreign direct investment on economic growth: Evidence from a small island developing state

Mauritius - 1 September 2016

Trade topics: Tourism

The present study attempts to address the important question of whether foreign direct investment (FDI) flowing into the tourism sector has served to enhance economic growth in Mauritius for the period 1984–2014. Using a dynamic vector error correction model, and catering for dynamism, the results show that tourism FDI has indeed contributed to fostering economic growth; albeit the magnitude of the coefficient being relatively smaller than FDI in the non-tourism sector. A plausible explanation for such a finding may reside in the fact that the bulk of FDI flows in the non-tourism sectors while domestic investment predominates in the tourism sector in Mauritius. The findings also demonstrate a positive relationship between tourism development and economic growth, thus supporting the tourism-led growth hypothesis.