The Triangular Causal Relationship between Economic Growth, Tourism, and Foreign Direct Investment: A Case Study in Central Vietnam

Abstract

The article proposes a method to broach the complication and mixture of the triangular causal nexus among gross domestic product (GDP), foreign direct investment (FDI), and foreign tourist arrivals (FTA) in Thua Thien Hue (TTH) province that has not yet been studied. FDI into TTH province fluctuates unpredictably, so the study investigates the causal relationship between the triangular variables over the whole period (1995–2019) and the shortened period (2003–2019). The ARDL model is the most optimal choice due to the heterogeneity of stationary characteristics and short time series data. The shortened period has established more statistically significant short- and long-term Granger causal relationships, excluding the economic crisis effect. The Granger causality test only underlined a unidirectional short-term relationship running from FTA to FDI in the shortened period. Policies for economic development in TTH province need to strengthen the coordination between foreign investment and tourism so that all economic sectors can jointly create spillover effects on economic growth.