Recently, growth and development studies have started to focus on the importance of improving institutions of governance through government effectiveness on economic growth. Foreign direct investment (FDI) inflows are used to address the economic problems, such as government effectiveness and tourism growth. This paper has identified, after visualizing theoretical standpoints and empirical researches, that there is the linkage between FDI inflows and government effectiveness-GDP nexus focusing on tourism sector. Contrasting with previous studies, this study not only observed the degree of the association between FDI in tourism sector (FDIT) and government effectiveness (GOV) but also investigated the relationship between FDIT and tourism growth (TG). While the amount of literature on FDIT, TG and GOV using panel data and for singular countries has increased in the last few years, no research has identified the relationships among FDIT, TG and GOV together using a growth framework and a simultaneous equation model. The end discussions show that FDIT has bidirectional causal relationships with TG and GOV. Therefore, reviewing this chapter it gets confirmed that the research gap prevails in this particular area, that is, neither do a research conducted for evaluation of FDI inflows in tourism impact on government effectiveness and GDP. Thus, in the light of suggestion of theories and empirical literature, this chapter paves the ground of building up a conceptual framework that is to describe the directions in recognizing how government effectiveness and FDI inflows in tourism can increase government effectiveness and stimulate the economic growth and tourism growth.
