Foreign Real Estate Investments and Tourism development in island economies: An Panel ARDL Approach

Mauritius - 15 May 2022

Tourism development and foreign real estate investment (FREI) are two aspects that have gained impetus in developing contexts over the past years. Using the context of small island developing economies, the study is being conducted to depict the link between tourism and foreign real estate investments (FREI). A sample of seven island economies, with data spanning over the period  2001 – 2018 is used for the study. To gauge the dynamic link, as well as find if there are any long or short-term relationships between the two variables, a Panel Autoregressive Distributed Lag (PARDL) methodology is used. The results illustrate that the link between FREI and tourism development is significant and positive in the long term and insignificant in the short term. It is concluded that for small island economies foreign investments in the real estate sector are used to generate infrastructural developments and this entails tourism development in the longer term. The Granger causality test also reveals that the link runs from tourism to FREI,suggesting that when tourists visit a country, this entails their investment in the real estate sector of the domestic country.