The impact of foreign direct investment on the growth of the tourism sector in Jordan (1980–2016)

• Published date: 01 May 2020
• Author: Said Sami Al‐Hallaq,Abdel Baset Athamneh,Hadil Mahmoud Suleiman
• DOI: http://doi.org/10.1002/pa.2005
• Date: 01 May 2020

ACADEMIC PAPER

The impact of foreign direct investment on the growth of the

tourism sector in Jordan (1980–2016)

Said Sami Al-Hallaq | Abdel Baset Athamneh | Hadil Mahmoud Suleiman

Business and Financial Economics, Faculty of

Economics and Administrative Sciences,

Yarmouk University, Irbid, Jordan

Correspondence

Abdel Baset Athamneh, Dept. of Economics/

Yarmouk University/ Jordan.

Email: athamneh71@yu.edu.jo

The study aimed at measuring and analyzing the impact of foreign direct investment

(FDI) on the growth of the Jordanian tourism sector during the period 1980–2016. In

order to test the stationarity of the variables of the study model, the augmented

Dickey–Fuller and the Philips Perron tests were applied. The results showed that the

variables were not stationary at their levels, but they become so when taking the first

difference with the intercept. The study also found a positive long-run relationship

between the ratio of FDI to gross domestic product (GDP) and the ratio of tourism

revenues to GDP according to the cointegration test used, which was the Granger

causality test. The test showed a one-way causal relationship between the ratio of

FDI to GDP and the ratio of tourism revenue to GDP. According to the estimation

results, the error correction model showed that there is a positive impact of FDI on

the growth of the tourism sector. Based on the results reached, the study

recommended the need to pay attention to the tourism sector, enhance its role in

economic development, and work to provide an optimal investment environment

by providing all necessary means for and assistance in establishing such investments.

All obstacles that limit the flow of the FDI in the Jordanian tourism sector should

be removed.

1|INTRODUCTION

Tourism plays an important role in activating and financing the econo-

mies of many developed and developing countries. The degree of the

tourism's contribution to financing of economic development differs

from one country to another depending on the tourism development

and the availability of the tourism infrastructure (Matias, 2004).

Tourism is an integrated industry that includes planning, investment,

marketing, and promotion. It is a multistage industry that is linked to

the rest of the economic activities with forward and backward

links; accordingly, tourism contributes to the economic development

of the country.

Foreign direct investment (FDI) plays an important role in the eco-

nomic development projects of the host country. Foreign investment

in tourism helps developing countries to reduce the impact of the

development gap between developing and developed countries

(UNCTAD, 2007). Expanding the investment base in the country and

enabling national capital to expand local products and improve the

infrastructure needed to meet the increasing demand for goods and

services positively affect the balance of payments. Foreign invest-

ments are also an effective tool for transferring advanced methods of

management, training, and marketing, as well as modern technology

and techniques. Foreign investments contribute to creating more job

opportunities in the host country (Lea, 1988).

In light of international interest in the tourism sector, Jordan has

increased its interest in this sector, given its role in enhancing national

income levels, the balance of payments, and various economic activi-

ties. Jordan enjoys natural and historical advantages and monuments

and sites; all of which make Jordan an important tourist attraction.

FDI in the Jordanian tourism sector has grown steadily due to rapid

technological change and liberalization of tourism investment policies.

In this context, all parties concerned with the development of the

tourism sector in Jordan are trying to attract FDI through special eco-

nomic zones, tax exemptions, incentives, and others. The policies

Received: 14 May 2019 Revised: 6 July 2019 Accepted: 30 July 2019

DOI: 10.1002/pa.2005

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