Determinants of Foreign Direct Investment in Africa: The Role of International Accounting Standards

Abstract

Following the widespread adoption of the International Financial Reporting Standards (IFRS) by many countries, several questions have been raised on the economic consequences of this adoption, particularly for international investments. This paper investigates whether the adoption of IFRS promotes FDI Inflows to countries from the Africa continent. The study used a panel data of 49 African countries for the period 1996 to 2016 from the World Development Indicators. Estimation of the regression model was done using the logistic regression model and the Fixed Effects Estimation Technique. The results demonstrate that African countries that have adopted IFRS on the average experience better FDI inflows than nonadopting countries. Further, natural resources endowment, infrastructural development, economic growth and trade openness were found to be important predictors of the amount of FDI inflows to African countries. The findings of this study suggest that the type of accounting standards adopted by African countries have important implications on FDI activities on the continent. Thus, African countries that seek to improve their business environment and investor confidence and attract FDI inflows should endeavour to strengthen their financial systems by adopting quality and internationally recognized accounting standards such as the IFRS. This study contributes to literature on the macroeconomic implication of the adoption of IFRS from an African perspective.