Influence of institutional quality, foreign direct investment and international trade on tourism inflow, South Africa

Abstract

Orientation: The South African Tourism Act of 2014 on improving the level of tourist attraction for sustainable development in South Africa has been promulgated to ensure quality tourism products and improve the growth and development of the tourism sector and ensure sustainable revenue generation.

Research purpose: This article investigates the dynamic impact of institutional quality, foreign direct investment and international trade on tourism inflows in South Africa from 1996 to 2019.

Motivation for the study: The study examines the impact of institutional quality, foreign direct investment and international trade on tourism inflow in South Africa. Investigations on the relationship between institutional quality and tourism are limited and filled with disparities. The study also adopted different measures to view institutional quality. South Africa is to benefit from this empirical investigation.

Research design, approach and method: World Bank Indicators were used as the main data source. Variables used for the analysis of the multivariate framework include international tourism receipts as a percentage of total exports, foreign direct investment, as a percentage of GDP, net inflow of investment, international trade, a combination of imports and exports gross domestic product, and political stability.

Main findings: The bound testing approach found cointegration among these variables. This study found a positive relationship between tourism inflow and international trade and between tourism inflows and regulatory quality, both in the short- and long-term. Unidirectional causality running from regulatory quality to tourism inflow in South Africa was also established.

Practical/managerial implications: Government should ensure good institutional qualities that will attract tourism to enhance international trade and economic growth in the long term.

Contribution/value-add: The result indicated that good regulatory quality improves attracting of tourists in South Africa. The volume of tourism inflows will assist in economic growth and increase foreign direct investments and other forms of international trade.