Effects of International Tourist Flow on Startup Financing: Investment Scope and Market Potential Perspectives

Abstract

International tourist flow positively affects human capital development and innovation at country and regional levels. This study examines how a country’s international tourist flow affects startup financing based on the “investment scope” and “market potential” perspectives. Analyzing the firm-country-year sample from 1995 to 2014 and the country-year tourism datasets, we find that startups engage in larger venture capital investment deals in countries attracting more international tourists and earning higher tourism revenue. The effect is more substantial for either venture capital-funded or high-technology startups, supporting that international tourist flow can increase the investment scope available to potential investors, specifically in the markets connected to tourism expenditures. Our findings contribute to the literature on the relationship between tourism and economic growth and practitioners and policymakers in the tourism and innovation sectors.