Causality between FDI in Real Estate and Tourism Growth: County-level Data from Croatia

Abstract

Croatia is a developed tourist destination that is overly dependent on tourism. Looking at the Croatian economy, the first thing that catches one’s eye is the role that tourism plays in its structure. It is a frightening fact that tourism generates almost a quarter of Croatia’s GDP. Tourism in Croatia has been growing steadily for years, and before the COVID-19 pandemic, Croatia began to face the problem of over-tourism. The real estate market in Croatia is also recording continuous rates of price growth, especially with regard to the attractive coastal region. Foreign direct investment (FDI) in real estate in Croatia became significant during the second decade of the 21st century, and today real estate is in second place if one looks at the structure of FDI in Croatia according to the National Qualification of Activities. In the last 10 years, real estate has accounted for 17.8% of all FDI in Croatia. Given the attractiveness of Croatia as a tourist destination, it is not surprising that its real estate market draws attention. The main goal of this paper is to determine the causal link between FDI in real estate and tourism at the level of Croatian counties in the period from 2007 to 2020. The research results found the existence of a one-way causal relationship running from international tourist arrivals to FDI in real estate at the 5% level of significance.