Today tourism has been converted into the most dynamic economic sectors in the world. Even if the majority of international tourism still becomes a great income resource for many countries and most governments support tourism industry actively. The objective of this study is presenting a methodology for examining the causal relationship between international tourist arrivals, foreign direct investment and Gross Domestic product in Spain and Italy. By using annual data of Spain and Italy for the period of 1980-2010, the results reveal that there was no causality among three variables in Spain. While in Italy, the empirical study shows that an increase in foreign direct investment will lead to upward increasing in economic growth. Moreover, Granger causality analysis investigates the short-run co-movements and interaction between economic growth and foreign direct investment. A discussion follows and major policy implications are suggested.
