Abstract
The aim of this paper is to explore the causal relationship between the foreign direct investment (FDI) stock in tourism and the number of international tourist arrivals in the Republic of Croatia in the period from 2000 to 2012. The study uses quarterly time series data from 2000(1) to 2012 (4). The augmented Dickey–Fuller (ADF) test was carried out to test the stationarity of variables. The Johansen co-integration test was used to test a long-term relationship between the variables, and given the absence of the same, the vector autoregression (VAR) model is set up. The Granger and Toda–Yamamoto test was conducted to test a short-run causality between the selected variables. The results indicated a one-way short-run causality relationship running from FDI in tourism to international tourism arrivals at a high significance level of 1%. The research results emphasise the need to establish a favourable macroeconomic environment, as well as a policy of incentive investment measures specifically targeted at the tourism sector. This would enhance the conditions for higher FDI inflow essential for qualitative and quantitative positioning of Croatian tourism compared to competing destinations.