World Applied Sciences Journal 10 (Special Issue of Tourism & Hospitality): 40-44, 2010 ISSN 1818-4952 © IDOSI Publications, 2010 Corresponding Author: Hassan Gholipour Fereidouni, School of Management, Universiti Sains Malaysia (USM), Penang, Malaysia. Postcode: 11800. Tel: +60-174809810, E-mail: hassanhgf@gmail.com. 40 The Interaction Between Foreign Real Estate Investment and Tourism: The Iranian Case in Dubai Hassan Gholipour Fereidouni, Tajul Ariffin Masron, 1 2 Anahita Malekmohammadi and Ai-Yee Ooi 3 4 Hassan Gholipour Fereidouni, PhD Student in Finance, School of Management, 1 Universiti Sains Malaysia (USM), 11800 Penang, Malaysia Tajul Ariffin Masron, Senior Lecturer, School of Management, 2 Universiti Sains Malaysia (USM), 11800 Penang, Malaysia Anahita Malekmohammadi, PhD Student in Tourism Development, School of Housing, 3 Building and Planning, Universiti Sains Malaysia (USM), 11800 Penang, Malaysia Ai-Yee Ooi, PhD Student in Finance, School of Management, 4 Universiti Sains Malaysia (USM), 11800 Penang, Malaysia Abstract: The empirical relationship between the evolution of tourism and foreign real estate investment is established in the literature; however the direction of causality between these two variables is less clear. The purpose of this study is to empirically investigate the pattern of causality between foreign real estate investment and tourism, within the context of Iranian investment in Dubai real estate sector (IIDRE) and Iranian tourism in Dubai. By applying multivariate cointegration approach, the findings indicate that in the long-run the causation runs from tourism to IIDRE. It means that accumulation of Iranian knowledge about attractiveness of Dubai as a holiday destiny is an important factor explaining IIDRE. The results also suggest that there is a bidirectional short-run causal relationship between these variables. The results have some important implications for Iranian and Dubai policymakers. Key words: Real estate %Tourism %Iranian %Dubai %Multivariate cointegration INTRODUCTION The purpose of this study is to empirically Previous studies established that foreign real estate investment is affected by the tourism. What is much less clear is the direction of causality between these two variables, given that, causal relationships running from tourism to foreign real estate investment and vice versa is both plausible. Accumulation of knowledge (by foreign tourists) about the attractiveness of the destination as a holiday destiny can directly drive the demand for housing services up, because tourism is considered as the first step before acquiring a property [1]. The increased foreign real estate investment, on the other hand, will raise the tourism because tourism is the following step after acquiring a property in a foreign country, which makes tourism be influenced by previous investment in real estate [1]. investigate the pattern of causality between foreign real estate investment and tourism, within the context of Iranian investment in Dubai real estate sector (IIDRE, hereafter) and Iranian tourism in Dubai (Dubai is an emirate of the United Arab Emirates (UAE). UAE lies in the heart of the Middle East and is one of the world’s fastest growing economies. By 2008, the UAE’s second largest constituent emirate, Dubai, was drawing over 97 per cent of its GDP from non-oil sectors, including a real estate industry, a world class luxury tourism industry, an international financial centre and a range of re-exporting and other commercial activities based out of international ‘free zones’. Dubai has historically enjoyed fairly warm relations with Iran, given that many of its immigrant merchants are of Persian origin. Iran has also long been the emirate’s principal regional trading partner and Dubai chose to remain neutral in the Iran-Iraq War) [2].