Foreign Direct Investment, Tourism Industry and Growth in Association of Southeast Asian Nations

The Southeast Asian region attracts the great flows of tourists to its beautiful natural and cultural tourist destinations every year. The tourism sector has become one of the most important source of foreign exchange for Southeast Asian countries for more than two decades. This study estimates the relationship among the growth in the tourism sector, foreign direct investment and GDP per capita among members of the Association of Southeast Asian Nations (ASEAN) during the period of 1995 to 2011. The study also considers the impact of foreign direct investment in the tourism industry on human resources of ASEAN countries in terms of employment generation and change in knowledge and skills. The method used in the study is dynamic panel analysis using the dynamic Generalized Method of Moments (GMM) model and panel Granger causality test. The results show that tourism industry performance and foreign direct investment in the tourism sector have a significant role on GDP per capita in the Southeast Asian region. Other factors determining GDP per capita among these countries are human capital and trade openness. The greatest share of foreign direct investment in the tourism industry in the ASEAN is in the form of supply expansion, especially hotels and restaurants. Investment has a significant effect on employment generation and skill development in ASEAN countries. The results from this study confirm the tourism-led growth hypothesis and suggest that the governments of the ASEAN countries are able to have effective growth policies through the tourism sector, opening this sector wider for international trade and improving their human capital.