Investigating the Impact of Foreign Direct Investment and Exchange Rates on Tourism in Iran: Evidence from the NARDL Approach

Tourism is a socio-economic phenomenon that begins with an economic decision about using leisure time and savings and has economic aspects such as investment, consumption, employment, export, and government income. Currently, tourism is one of the factors that providing income in the global economy and is becoming an essential factor for the investments and development of countries. The development of this industry is very important in developing countries, such as Iran, which are facing problems such as unemployment, lack of foreign exchange resources, and a single-product economy. Tourism is closely related to foreign direct investment, because tourism development has an urgent need for foreign direct investment in the tourism sector. Internationalization is a phenomenon that links tourism to foreign direct investment. Foreign direct investment helps in the financing, technology transfer, infrastructure development, job creation, and economic growth. Along with several benefits that foreign direct investment brings to the host country, it also plays a prominent role in developing the tourism industry. Also, the tourism industry, like many other industries, is disturbed by the fluctuations of the currency market. This disturbance in the tourism market is much more visible than in other industries, because the tourism industry is directly related to exchange rate changes. Considering that the development of the tourism industry is very important for developing countries like Iran, which are facing problems such as high unemployment rate, limited foreign exchange resources, and single product economy, the main purpose of this research is to investigate the asymmetric effect of foreign direct investment and exchange rate on Tourism in Iran.

The research model in this study to investigate the asymmetric effects of foreign direct investment on tourism is taken from the study of Munir and Iftikhar (2021) as follows, in addition, since the sanction is one of the influencing factors on Iran's economy in different periods and consequently on is the number of incoming tourists to Iran, so in this study, the sanction variable has been added to the study model as an important variable.Where, TR (number of incoming tourists), FDI (foreign direct investment), ER (real exchange rate), INF (inflation rate), and SAN (sanction index). In the model estimation process, the data of this research was extracted from the sources of the World Bank and the International Monetary Fund on an annual basis during the period of 1981-2019, the data related to the sanctions index was taken from the study of Iranmanesh et al. (1400). In this study, the sanctions index was obtained through interviews with 15 experts in the economy of sanctions in the form of fuzzy questionnaires and fuzzy logic method. In addition, the Nonlinear Autoregressive Distributed Lag method (NARDL) is also used to estimate the above model.

In this study, before performing the cointegration test, the degree of integration of the variables was determined by using two unit root tests of Augmented Dickey-Fuller and Zivot-Andrews. The results of the unit root test showed that in the Dickey-Fuller test, all model variables, except the inflation rate, are integrated into the first order. Also, in the Zivot-Andrews test, the variables of foreign direct investment and the inflation rate are integrated in zero order, and the rest are integrated in one order. After performing the unit root test, the bounds cointegration test was performed to check the existence of long-term relationships between the variables, the results of this test showed that there is a long-term relationship between the variables. After ensuring the existence of a long-term relationship between the variables, Wald's test was used to perform the short-term and long-term asymmetry tests. The results of this test showed that the effect of the foreign direct investment variable on the tourism variable is asymmetric in the short and long term. By identifying the existence of a long-term relationship and confirming the asymmetric effect of foreign direct investment on tourism in the short and long term, the final estimation of the NARDL model was carried out. The estimation results of the model show the asymmetric effect of foreign direct investment in the short and long term on tourism. So that in the short and long term, the effect of positive and negative changes in the foreign direct investment variable on tourism has been positive and significant. Also, the results showed that the effect of the exchange rate on tourism in the short and long term is positive and significant. Finally, to ensure the stability of the model, CUSUM and CUSUMSQ tests were performed. The results indicate that the estimated model is stable.

According to the results of the model estimation:1-Considering the positive impact of foreign direct investment on the number of incoming tourists to Iran, it is recommended that policymakers try to strengthen relations with other countries in the first step. Also, by adopting the right policies to strengthen the infrastructure, facilitate the issuance of permits and generally provide a suitable platform and a safe environment to encourage investors and foreign countries to invest in the country, provide the ground for the arrival of more tourists from all over the world.2- Considering the positive effect of the exchange rate on the balance of payments of tourism, policymakers and, economic planners are suggested to increase the exchange rate by short shocks. But an increase in the exchange rate can cause domestic inflation, mistrust of domestic money and create rental income for profit-seeking people. Considering the negative effect of the inflation rate on the demand function of international tourism for travel to Iran, policymakers and economic planners should try to control the inflation rate in the country by adopting appropriate monetary and financial policies so that they can reduce its negative effect on the number of tourists.3- The negative effect of sanctions on the number of tourists arriving in Iran indicates the fact that the application of diverse and extensive economic sanctions by the United States of America, the European Union and the United Nations Security Council against Iran has had a significant negative effect on attracting foreign tourists to Iran. It is recommended that in the first step, policymakers and officials take practical measures by conducting effective negotiations to reduce sanctions and at the same time, make decisions so that they can reduce the negative impact of sanctions in the field of attracting foreign tourists.