This study applies the time-series method to investigate the relationship between foreign direct investment (FDI) and tourism in Thailand. The data cover the period from January 2001 to December 2010 at the monthly interval. The countries under investigation are the five East Asian countries. They include China, Hong Kong, Japan, South Korea, and Taiwan.
FDI and tourism are found to be I(1) series and cointegrated for China, Japan, and South Korea. The Granger causality test is thus performed in the context of the vector error correction model. The results indicate that there is a bi-directional causality between tourism and FDI in South Korea and a uni-directional causality from FDI to tourism found in Japan and China. FDI is found to be I(1) and tourism to be I(0) for Hong Kong and Taiwan. The Granger causality test is thus performed in the context of the vector autoregressive model with the first difference of FDI and the level of tourism, both integrated of order 0. No causal relationship between FDI and tourism is found for Hong Kong and Taiwan. It is suggested that Thai government should endeavor to promote FDI and tourism in order to capture the benefits from FDI and tourism externalities.
