Foreign Direct Investment In Tourism Sector


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Introduction About  FDI

In the 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 rates and industrialization in an economy (Song and, 2012). With the growth of the tourism sector in the past couple of decades, the companies have started identifying new investment opportunities. Thus, it has become essential for nations to identify investment opportunities in order to reap the benefits of the tourism sector.  The tourism sector as an industry segment in itself is a US $ 3.5 trillion dollar service sector within the 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 by an 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 the last few years which was increased by about US$180 million in 2006-2007 (Taneja and, 2011). Thus, due to the scope for the economic opportunities in FDI in tourism in the least developed economies, research has been carried out to investigate opportunities and challenges in attracting FDI in the tourism sector for undeveloped countries taking the case of the Nepalese economy.


It is essential to make a feasibility analysis of any research idea as it provides information regarding the viability of a research study. It was rational to select the case of the Nepalese economy as it is characterized by an abundance of natural resources, diverse culture and ethnicity, and several archaeological and heritage sites including eight of the world’s highest ten peaks (including Mt, Everest). Although these factors have supported the growth of the tourism sector in Nepal there are numerous factors that are creating hurdles for the economy such as inadequate infrastructure facilities and lower living standards for people. Thus, it has become essential for LDCs to promote investment in leading sectors to increase 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 the Nepalese experience (Prasain, 2013). As the proposed research idea was relevant to the business context in the contemporary era which would end up with some fruit-bearing recommendations to LDCs to 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.

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Research Aims and Objectives

It is essential to develop well-defined objectives to ensure the focus of the researcher on specific areas. Research objectives can be termed as desired outcomes that 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 the tourism sector of the Nepalese economy.
  • To evaluate various opportunities and challenges in attracting investment in the tourism sector of Nepal.
  • To recommend Nepalese government obtain development opportunities by seeking more investment in the tourism sector.

Research Questions

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

Methodological Framework

Research methodology can be defined as the blueprint that 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, and choices has been provided to give an idea to the audience regarding the methodological framework. In order to reach objectives, both primary and secondary data have 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 the 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).

Review Of Literature

In this chapter, an extensive review of the literature has been undertaken because it provides the base for current research. This section is comprised of analysis of secondary data which is a useful source of information for the audience and researcher. Various books, journals, and online articles have been accessed to investigate the results of previous studies. In order to analyze data in systematic manner, various themes based on research objectives have been identified under which the entire study was completed. Foreign Direct Investment, the 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 been presented. 

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Meaning and Significance of FDI in the Tourism Sector of Least Developed Countries (LDCs)

According to Agarwal and Upadhyay, (2006), Foreign Direct Investment (FDI) is a direct investment that is made by a 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 a long-term relationship between investor and investment (Agarwal and Upadhyay, 2006). Taneja and, (2011) in their study studied the significance of the tourism sector of Nepal and stated that it is a complex industry that is comprised 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 the hotel chain or other organisations associated with this sector (Taneja and et. al., 2011). Increasing FDI in tourism can benefit economic development by providing a 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 their study that Nepal has various opportunities to attract foreign investment due to its geographical position and economic situation. It has taken various steps to promote 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 that may affect the FDI promotion programs in Nepal. For the 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 the economy which is not allowing the Nepalese government to increase FDI promotional programs in tourism at a larger scale (Gautam, 2008).  In a similar fashion, Song and et. al., (2012) revealed opportunities for attracting FDI in the tourism sector and stated that the economy of Nepal had several possibilities for increasing foreign inflows because this undeveloped economy offered a variety of interests to tourists ranging from natural tourism, and cultural tourism, adventurous and religious tourism.

Wells and Sharma, (1998) carried out research to test the feasibility of the proposal for increasing FDI inflow in Nepal in the tourism and hydropower sector and revealed that the incredibly diverse flora, culture, and religious belief in Nepal were the driving factors of investment in the tourism sector of Nepal. He further stated that the annual growth of Nepal’s tourism sector is approximately 10% which can be viewed as an opportunity for investors (Wells and Sharma, 1998). However, the percentage of the contribution of the tourism sector in the 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 the tourism sector as it is not found one of the main determinants of FDI in several industries and countries. Thus, it affects the inflow of FDI in specific industries such as pharmaceuticals, microelectronics, and agrochemicals (Taneja, Chowdhury, and Prakash, 2011). However, the 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 research, generally, three types of philosophies are employed including positivism, realism, and interpretivism. In this manuscript, a positivist research philosophy has been employed because it is based on the assumption that humans are rational and precision is most important (Jonker and Pennink, 2010). The selection of the above-cited research philosophy is rational because it does not consider differences in humans as social actors and aims to draw results on strong evidence and reality. Thus, it can be said that positivist philosophy is the rational method for this manuscript to reach the desired outcomes. 

Research Approach

Approaches in research have less evaluating meaning as it simply refer to the way of doing the study. In other words, the way in which the researcher reaches to conclusions is known as the research approach. There are generally two types of approaches including inductive and deductive approaches. An inductive research approach is one which seeks to draw conclusions by moving from general to specific. The deductive approach on the other hand is one that generally starts by formulating a hypothesis 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 the deductive approach whereas in a few cases, a specific case of Nepal is selected to draw generalized results in the context of LDCs.

Research Design

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

Data Collection

Data collection is an inherent part of 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 a research study. Primary and secondary are two types of data that 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 a well-structured questionnaire using survey methodology (Hoy, 2009). The questionnaire was developed on the basis of an 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 the most important part of any study because the conclusions and recommendations of a dissertation are solely based on the data analysis part. It is essential to select appropriate methods of analysis so that the manuscript can be made worthwhile. Qualitative and quantitative are two common methods of data analysis (Creswell, 2013). A researcher may also use mixed methods if required for doing so in order to reach desired outcomes. Statistical tool SPSS has been used to analyze primary data. For open-ended questions, thematic analysis, a method of qualitative technique has been adopted. Descriptive statistics has been employed using SPSS so that observations can be interpreted in effective manner. Descriptive statistics is a common statistical tool that has been employed to investigate the 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 evaluate responses from open-ended questions. Thus, the selection of these methods can be justified.

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Ethical and Accessibility Issues

Ethical and accessibility issues cannot be detached from any research because data collection and dissertation drafting are affected by human interactions. Ethical issues are related to right and wrong doings which brings researchers into a dilemma. While carrying out this study, the major ethical issues were witnessed in data collection in which the researcher witnessed issues related to the privacy of information of respondents and the impact of research on their organization/dignity. In order to eliminate such ethical issues, participants were assured that their names and identities would 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 an inherent part of any research and therefore, it is essential to identify the limitations of a manuscript so that the applicability of the present study can be determined. Limitations in this study were associated with data collection and other parts of the methodology (Patton, 2005). Due to a lack of sufficient time and other resources, a small sample size was selected from which responses were received. In addition to this, the present study is limited to opportunities and challenges of FDI in tourism in Nepal only. Thus, the scope and applicability of conclusions and recommendations is limited to 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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