Time-varying mechanisms between foreign direct investment and tourism development under the new normal in China

Abstract

This study is aimed at investigating what has happened to the dynamic linkages between foreign direct investment (FDI) and tourism development in China since the emergence of the so-called new normal economy. A time-varying parameter vector autoregressive (TVP-VAR) model is used for the first time to analyze the equi-spaced and time-point impulse responses between FDI, foreign exchange earnings from international tourism (FEE), and gross domestic product using annual data taken from 1983 to 2017. The results for the equi-spaced impulse response show that a difference in intensity for the interaction effect between FDI and FEE will change with different intervals. In addition, impulse response diagrams for FDI and FEE based on changes in economic development at three significant points in time reveal that the effect FDI in the new normal period has had the greatest impact on FEE in 2012, followed in decreasing impact by 2003 and then 1997.