VECM Model Analysis of the Causality between Tourism, Foreign Direct Investment and Economic Growth in Tunisia

Abstract

This paper aims to investigate the causality between tourism, foreign direct investment and economic growth in Tunisia over the period ranging from 1980 to 2018. Time series analysis techniques were used as an econometric tool in this chosen subject, namely, the Augmented Dickey- Fuller (ADF) test for verification of the presence of the root unit, the Engle-Granger test for the existence of cointegration and the Granger causality test for the determination of the causal relationships between the variables of the model. The results of this study have shown a positive relationship between tourism receipts, foreign direct investment and economic growth, and how these three variables are co-integrated of first order. In addition, at the significance level of 5%, there has been: (i) A bidirectional relationship between economic growth and tourism development, that’s mean, the economic growth can contribute to tourism development and vice versa; (ii) A unidirectional relationship between economic growth and foreign direct investment; (iii) Finally, a unidirectional relationship between tourism development and foreign direct investment. This study has also suggested that the government should focus on economic policies to further promote international tourism as a potential source of economic growth in Tunisia.