TOURISM FOREIGN DIRECT INVESTMENT LED TOTAL FOREIGN DIRECT INVESTMENT: A CO-INTEGRATION AND CAUSALITY ANALYSIS OF CROATIAN ECONOMY

The purpose of this study is to investigate the causal relationship between foreign direct investment in tourism and total foreign direct investment in Croatia. The study employs econometric techniques such as unit root test, Johansen co-integration and Granger and Toda-Yamamoto causality tests in vector autoregressive model (VAR) using quarterly time series data from 2000 to 2012. The results do not confirm the existence of a stable co-integrated relationship between variables in the long run. The Granger causality test and the Toda-Yamamoto version of the Granger causality test show a one-way short run causality relationship from foreign direct investment in tourism to total foreign direct investment in Croatia at the 5% level of significance. This result once again adds to the need for removing or at least neutralizing the significant existing investment restrictions in Croatia in order to become interesting to international foreign capital and thereby ensure the necessary continuity of development and further improvement of competitive ability. Special attention should be focused on attracting foreign direct investment in tourism because these investments may increase the overall level of investment in the Croatian economy.