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This study analyzes the long run as well as short run linear and nonlinear impact of foreign direct investment (FDI) and exchange rate on tourism in South Asian countries. The study uses annual panel data of five South Asian countries that is Bangladesh, India, Nepal, Pakistan, and Sri Lanka from 1995 to 2019 and applies panel linear autoregressive distributive lag (ARDL) and nonlinear autoregressive distributive lag (NARDL) methodology to analyze the long run and short run relationship among the variables. Results show that an increase in FDI and appreciation of exchange rate contracts tourism, while a decrease in FDI and depreciation of exchange rate expands tourism in the long run. Both FDI and exchange rate shows asymmetric behavior with tourism in the long run in South Asian countries. Results of individual countries show that FDI has asymmetric impact on tourism in Bangladesh, India, Pakistan, and Sri Lanka in the short run, while exchange rate has asymmetric impact on tourism in Bangladesh, India, Nepal, and Pakistan in the short run. Moreover, unidirectional causality exits from FDI, exchange rate, partial negative sum of FDI, and partial positive sum of exchange rate to tourism as well as from tourism to partial positive sum of FDI and partial negative sum of exchange rate. Therefore, there is a need to expand tourism sector through attracting FDI in tourism sector, while FDI attraction and tourism development must be well coordinated among different departments as well as maintain exchange rate at a reasonable level to encourage international tourism.

Asymmetric Impact of FDI and Exchange Rate on Tourism: Evidence From Panel Linear and Nonlinear ARDL Model