The interaction effects of foreign direct investment and inbound tourism as drivers of economic development: A comparitive analysis of free trade zone member countries

This study explores the interaction effect of foreign direct investment(FDI) and inbound tourism on the economic development of free trade zones using panel data of 198 observations from 2002 to 2019 for China and 10 ASEAN countries within the ACFTA framework. By comparing the differences in the effects of FDI and inbound tourism on economic development under this framework, the study aims to fill the research gap regarding the impact of foreign capital inflows and the tourism industry on economic growth in free trade zones, thereby providing policy implications for countries participating in the free trade economic system. Using panel data regression models, this study finds that both FDI and inbound tourism have a significantly positive effect on the economic development of core countries compared to peripheral countries in the ACFTA. Additionally, the interaction between these two factors significantly accelerates the economic development of core countries within the free trade zone. However, for peripheral countries, the interaction effect is relatively small due to limitations in infrastructure and policy environments. This study suggests that core countries should strengthen the integration strategies of FDI and inbound tourism, while peripheral countries should focus on improving infrastructure and investment environments, enhancing connectivity with core countries, and implementing an integrated tourism investment promotion policy to fully leverage their economic development potential. Ultimately, this study provides a new perspective on the role of the tourism industry in the economic development of free trade agreement participants.