Using the Structural Time Series Model to Analyze the Nexus Tourism and Foreign Real Estate Investment

Mauritius - 8 August 2022

Trade topics: Foreign Direct Investment

Tourism and foreign real estate investment (FREI), both represent important sources of foreign income for some emerging nations. Mauritius, a small island economydepends largely upon tourism and it has been promoting FREI over the past two decades to promote its economic growth. Under such a context, it would be interesting to study the relationship that could exist between tourism and FREI. For the research, yearly data spanning from 2000 to 2021has been used. To depict the relationship between the two variables, a structural time series model was used. It was found that the trend (level), cycles, and tourism significantly and positively affected FREI. Using a similar approach,it was established that the trend (level and slope) and FREI were positive and significant determinants of tourism. To further delve into the relationship between the two variables, a bidirectional causal analysis was undertaken. From the dynamic analysis, it was found that in the long term the two variables had a bidirectional causal relationship. Further, a pairwise Granger causality test also indicated that a short-term causal link existed between the two variables.