The Effect of International Financial Reporting Standards on the Association between Foreign Direct Investment and Economic Growth: Evidence from Selected Countries in Africa

Shuibin Gu,Gigamon Joseph Prah

doi:10.20448/2002.81.21.29

Abstract

The study aims at examining how IFRS adoption influences the relationship existing among foreign direct investment (FDI) and economic growth. The data consist of 12 developing economies that are the highest recipients of FDI in Africa, and the years of study are from 1996-2018. Using Ordinary Least Square and Generalized Least Square method of estimation, the result shows that IFRS is significantly positive to FDI. With FDI inflows in these countries, the result provides evidence that Non fully-IFRS adopted countries experience higher inflows of FDI than the fully-IFRS adopted countries. We find FDI inflows to also have positive influence on economic growth. The interaction of FDI and IFRS also influences economic growth positively when further analysis was carried on. The results provide evidence of positive relation among FDI, IFRS, and economic growth. IFRS adoption promotes FDI inflows which consequently spurs economic growth. There is, therefore, the need for policymakers to ensure adoption and enforcement of IFRS.

Highlights

Every country has the objective of achieving higher economic growth and ensuring its sustainability
The study is interested in the relationship among foreign direct investment (FDI), International Financial Reporting Standards (IFRS), and economic growth
We make a conclusion that IFRS causes FDI inflows to increase, and the increased FDI inflows enhances improvement in the economies of IFRS-adopting countries

Summary

Introduction

Every country has the objective of achieving higher economic growth and ensuring its sustainability. This study, considers the relationship between FDI, IFRS, and economic growth, using 12 developing nations in Africa These countries were selected for the reason that they are the highest recipients of FDI in Africa, and had the highest inflows in the year 2018. According to the UNTAD’s World Investment Report 2019, these 12 countries were major investee economies This study adds these contributions to existing literature: First, to the researchers’ best knowledge, this is the first empirical research that analysis the consequence of IFRS on how FDI relate to economic growth, using 12 developing countries in Africa that are the highest recipients of FDI.

Literature

Theoretical Framework and Hypothesis Development

Methodology

Data Analysis and Interpretation

Conclusion