Foreign Direct Investment In Tourism Sector

Answer :


In contemporary era, Least Developed Countries (LDCs) are looking for tourism opportunities as it has the potential of promising avenue for economic and human development. Least developed nations are characterized by low growth rate and industrialization in an economy (Song and, 2012). With the growth of tourism sector in past couple of decades, the companies have started identifying the new investment opportunities. Thus, it has become essential for nations to identify the investment opportunities in order to reap the benefits of tourism sector.  The tourism sector as an industry segment in itself is a US $ 3.5 trillion dollar service sector within global economy. The growth of this sector largely depends upon the private sector equity (Sporek, 2012). Foreign Direct Investment (FDI) is the investment that is made in the country from the investor residing in another/foreign country. In other words, controlling ownership in a business enterprise in one country by entity/investors in another country is known as FDI.

FDI in this sector has significantly increased in last few years which were increased near about US$180 million in 2006-2007 (Taneja and, 2011). Thus, due to scope for the economic opportunities in FDI in tourism in least developed economies, a research has been carried out to investigate opportunities and challenges in attracting FDI in tourism sector for undeveloped countries taking a case of Nepalese economy.


It is essential to make feasibility analysis of any research idea as it provides information regarding viability of a research study. It was rational to select the case of Nepalese economy as it is characterized for abundance of natural resources, diverse culture and ethnicity, several archaeological and heritage sites including eight of world’s highest ten peaks (including Mt, Everest). Although, these factors have supported the growth of tourism sector in Nepal but there are numerous factors which are creating hurdles for the economy such as inadequate infrastructure facilities and lower living standard of people. Thus, it has become essential for LDCs to promote investment in leading sectors for increasing national income and development opportunities (Gautam, 2008). Hence, in this manuscript, various opportunities and challenges of attracting FDI have been studied by taking the case of Nepalese experience (Prasain, 2013). As the proposed research idea was relevant to business context in contemporary era which would end up some fruit bearing recommendations to LDCs for obtain growth opportunities by attracting investment opportunities. Therefore, this idea was put into actionable form by carrying out the research and the selection of title and idea was justifiable due to its potential significance.

Research aims and objectives

It is essential to develop well defined objectives to ensure focus of researcher on specific areas. Research objectives can be termed as desired outcomes which are to be achieved in a manuscript (Jonker and Pennink, 2010). The following objectives have been identified for this dissertation to reach attain desired outcomes.

  • To critically review the significance of FDI in tourism sector of Nepalese economy.
  • To evaluate various opportunities and challenges in attracting investment in tourism sector of Nepal.
  • To recommend Nepalese government to obtain the development opportunities by seeking more investment in tourism sector.

Research questions

  1. What are the advantages for Nepalese economy by attracting FDI in tourism sector?
  2. What are the opportunities and challenges which determine the scope of FDI in tourism sector of Nepal?
  3. How least developed economies can reap development opportunities by increasing FDI inflow in tourism sector?

Methodological framework

Research methodology can be defined as the blue print which provides the selection and justification of various methods and techniques to be used in the study (Creswell, 2013). In this introductory chapter, brief information regarding key methods, approaches, choices has been provided to give an idea to audience regarding methodological framework. In order to reach objectives, both primary and secondary data has been collected. Primary data was collected from 35 people who were experts and knowledgeable for this study whereas secondary resources were also accessed to check validity of primary research. In this study, both qualitative and quantitative tools have been employed to present the data using SPSS and thematic analysis (Goddard and Melville, 2004).


In this chapter, an extensive review of literature has been undertaken because it provides the base to current research. This section is comprised of analysis of secondary data which is useful source of information for audience and researcher. Various books, journals and online articles have been accessed for investigating results of previous studies. In order to analyze data in systematic manner, various themes based on research objectives have been identified under which entire study was completed. Foreign Direct investment, significance of FDI, challenges and opportunities for least developed countries and ways of attracting more investment have been identified as key themes under which relevant theories, concepts and research findings have presented. 

Meaning and Significance of FDI in tourism sector of Least Developed Countries (LDCs)

According to Agarwal and Upadhyay, (2006) Foreign Direct Investment (FDI) is a direct investment which is made by country with an aim to gain lasting interest by resident enterprise of an economy. They further stated that lasting interest here refers to the existence of long term relationship between investor and investment (Agarwal and Upadhyay, 2006). Taneja and, (2011) in his study studied, the significance of tourism sector of Nepal and stated that it is a complex industry which is comprises of many industries including accommodation, construction, food and telecommunication. He further provided the importance of FDI in tourism for Nepal. Foreign Direct Investment can provide an equity stake in hotel chain or other organization associated with this sector (Taneja and et. al., 2011). Increasing FDI in tourism can benefit economic development by providing number of forward and backward linkages (Nyaupane and et. al., 2006). However, negative impacts of the same can also be seen such as degradation of community value and heritage to environmental quality (Agarwal and Upadhyay, 2006).

Opportunities and challenges in attracting investment in tourism sector of LDCs

Song and, (2012) concluded in his study that Nepal has various opportunities to attract foreign investment due to geographical position and economic situations. It has taken various steps for promoting FDI in tourism. Tourist, service and construction industries are exempted from income tax for a period of 5 years (Song and et. al., 2012). However, there are certain challenges which may affect the FDI promotion programs in Nepal. For stable flow of investment in the economy there is a need of stability in political situations. Many argue that it could lead to social and environmental cost to economy which is not allowing Nepalese government to increase FDI promotional program in tourism at larger scale (Gautam, 2008).  In similar fashion, Song and et. al., (2012) revealed opportunities for attracting FDI in tourism sector and stated that economy of Nepal had several possibilities for increasing foreign inflows because this undeveloped economy offered variety of interests to tourists ranging from natural tourism, cultural tourism, adventurous and religious tourism.

According to Wells and Sharma, (1998) carried out a research for testing feasibility of the proposal for increasing FDI inflow in Nepal in tourism and hydropower sector and revealed that the incredible diverse flora, culture and religious belief in Nepal were the driving factors of investment in tourism sector of Nepal. He further stated that annual growth of Nepal’s tourism sector is approximately 10% which can be viewed as opportunity for investors (Wells and Sharma, 1998). However, the percent of contribution of tourism sector in national Gross Domestic Product (GDP) was 6%.

Contrary to this, Taneja, Chowdhury and Prakash, S., (2011) revealed that protection of IPR does not matter a lot for tourism sector as it is not found one of the main determinants of FDI in several industries and countries. Thus, it affects inflow of FDI in specific industries such as pharmaceutical, micro electronics and agro-chemicals (Taneja, Chowdhury and Prakash, 2011). However, tourism sector cannot be seen as an isolated and independent industry as it includes many other industries including transportation, restaurant and hotel industry.

Research philosophy

Philosophy in research is associated with the mindset of the researcher which influences his/her to carry out research in a particular manner. Thus, it is related to the development and nature of knowledge. In academic researches, generally, three types of philosophies are employed including positivism, realism and interpretivism. In this manuscript, a positivism research philosophy has been employed because it is based on the assumption that human are rational and precision is most important (Jonker and Pennink, 2010). Selection of above cited research philosophy is rational because it does not consider different in the human as social actors and aims to draw results on strong evidences and reality. Thus, it can be said that positivism philosophy is rational method for this manuscript to reach desired outcomes. 

Research approach

Approaches in research have less evaluating meaning as it simply refers to the way of doing the study. In other words, the way in which researcher reaches to the conclusions is known as research approach. There are generally twp types of approaches including inductive and deductive approach. An inductive research approach is one which seeks to draw conclusions by moving from general to specific. Deductive approach on the other hand is one which generally starts by formulating hypothesis and using general information and deducting the same to give specialized results (Silverman, 2010). In this study, both inductive and deductive approaches have been selected because in secondary research, analysis is based on deductive approach whereas in few cases, a specific case of Nepal is selected to draw generalized results in context to LDCs.

Research design

Research design can be defined as a blueprint which is helpful for researcher to carry out study in structured way. Selection of a research design is based on various criteria such as nature of study, problem identification and research objectives. In broader sense, research design can be bifurcated in two parts, applied and basic. Basic research design is mere based on the review of previous studies whereas applied study does experimentation and analysis using primary data (in most of the cases) to draw results.

Data collection

Data collection is an inherent part in the process of research because without data, insightful information cannot be obtained. Thus, data collection is a method in which necessary data and information is gathered to carry out research study. Primary and secondary are two types of data which are collected for the study. Primary data is one which is gathered for the first time by the researcher. Therefore, it is also known as fresh or empirical data which is used in empirical studies. Unlike primary data, secondary data is not collected for the very first time because it has already been collected by someone else. In this study, both primary and secondary data have been gathered. Primary data has been gathered by well structured questionnaire using survey methodology (Hoy, 2009). The questionnaire was developed on the basis of extensive literature review. By reviewing the literature, information was gathered regarding possible challenges and opportunities on the basis of which questions were designed. Secondary data on the other hand has been gathered by accessing various books, journals and online articles. In this manuscript, primary data has been collected to analyze the results from empirical data whereas secondary research has been carried out to complement primary data analysis results.

Data analysis

It is most important part of any study because conclusions and recommendations of a dissertation are solely based on data analysis part. It is essential to select appropriate methods of analysis so that manuscript can be made worth bearing. Qualitative and quantitative are two common methods of data analysis (Creswell, 2013). A researcher may also use mixed methods if it required for doing so in order to reach desired outcomes. Statistical tool SPSS has been used to analyze primary data. For open ended question, thematic analysis, a method of qualitative technique has been adopted. Descriptive of statistics has been employed using SPSS so that observations can be interpreted in effective manner. Descriptive of statistics is a common statistical tool which has been employed to investigate underlying distribution of data. The questions have been developed on a five point Likert scale therefore; this method can assist in interpreting the results in an effectual manner. Furthermore, thematic analysis has also been used in order to valuate responses from open ended question. Thus, selection of these methods can be justified.

Ethical and accessibility issues

Ethical and accessibility issues cannot be detached with any research because data collection and dissertation drafting is affected by human interactions. Ethical issues are related to right and wrong doings which brings researcher into dilemma. While carrying out this study, the major ethical issues were witnessed in data collection in which researcher witnessed issues related to privacy of information of respondents and impact of research on their organization/dignity. In order to eliminate such ethical issues, participants were assured that their names and identities will not be disclosed (Goddard and Melville, 2004). Additionally, they were also informed that this research would not harm their or any organization’s dignity. Some accessibility issues were also witnessed in contacting participants of this research. For this, prior information to higher authorities of selected international organizations was taken using video conferencing.

Research limitations

Limitations are inherent part of any research and therefore, it is essential to identify limitations of a manuscript so that applicability of present study can be determined. Limitations in this study were associated with data collection and other parts of methodology (Patton, 2005). Due to lack of sufficient time and other resources, a small sample size was selected from which responses were received. In addition to this, present study is limited to opportunities and challenges of FDI in tourism in Nepal only. Thus, scope and applicability of conclusions and recommendations is limited o Nepal and similar LDCs.  


  • Barrowclough, D., 2007. Foreign investment in tourism and small island developing states. Tourism Economics.
  • Majagaiya, P. and Gu, Q., 2010. A time series analysis of foreign direct investment and economic growth: A case study of Nepal. International Journal of Business and Management.
  • Nyaupane, G. P. and et. al., 2006. The role of community involvement and number/type of visitors on tourism impacts: A controlled comparison of Annapurna, Nepal and Northwest Yunnan, China. Tourism Management.
  • Sharma, S. R., 2012. Building a Bridge towards Development: Nepalese Economy in 2030. Peaceful and Prosperous Nation. pp. 1.
  • Song, H. and et. al., 2012. Tourism economics research: A review and assessment. Annals of Tourism Research.
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