A gravity model of foreign direct investment in the hospitality industry

This paper investigates the determinants of FDI activity in the hospitality industry using a gravity model. It draws on a new and unique database of 2420 FDI projects carried out by 50 parent countries in 104 host countries from 2005 to 2011. Results show that the number of hotel FDI projects is significantly and positively related to the market size and the existence of a common language while increases in the level of business regulations, tax rates or minimum wages have the opposite effect. Geographical distance and socioeconomic factors are not relevant. Comparing the number of predicted FDI projects with those actually carried out, we find that the United Kingdom, India, and Mexico are particularly successful in attracting hotel FDI projects, whereas Russia, Germany, and the United States host much fewer.