Foreign Direct Investment in GCC Countries: The Essential Influence of Governance and the Adoption of IFRS

Costas Siriopoulos,Evangelos Daskalopoulos,Argyro Svingou,Athanasios Tsagkanos

doi:10.3390/jrfm14060264

Costas Siriopoulos, Evangelos Daskalopoulos + Show 2 more

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https://doi.org/10.3390/jrfm14060264

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Abstract

This paper presents an analysis of the factors affecting foreign direct investments, focusing on governance quality and adoption of International Financial Reporting Standards on countries of the Gulf Cooperation Council, which are a special case of study due to their idiosyncratic characteristics, rich natural resources and geographical position. Panel data analysis was conducted, implementing three different models (Fixed Effect, Random Effect, and Arellano Bond Dynamic Model). The results show that the adoption of International Financial Reporting Standards is a strong determinant that promotes foreign direct investments. As regards the governance quality, the block of Gulf Cooperation Council countries has fulfilled the minimum level of governance pre-conditions relative to foreign direct investments. In addition, governance indicators associated with law, rules, and corruption are more influential determinants for foreign direct investments.

Highlights

The GCC1 is an important union of states that attracts the world’s attention because it is one of the main producers of the world’s oil
Our results clearly demonstrate that the adoption of IFRS has a significant impact on foreign direct investments (FDI)
Our results show interesting insights on the adoption of IFRS and the governance quality on FDI.IFRS are well established in the literature in terms of their effects both on the micro and macro levels

Summary

Introduction

The GCC1 is an important union of states that attracts the world’s attention because it is one of the main producers of the world’s oil. These states play a significant role in the energy market and in the global market. These states differ from the developed and emerging countries. The union of GCCs was created in 1981 for political and economic cooperation aiming at the integration and coordination of the member states in all fields. All GCCs are members of the Greater Arab Free Trade Area (GAFTA) and of the World Trade Organization (WTO)

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