This paper constructs a theoretical model to explain the relationship between IFRS adoption, FDI and foreign aid. Using the SGMM estimation technique to check the issue of endogeneity and reverse causality, this relationship was examined on 92 countries for the period 2003-2012. Overall, IFRS adoption attracts more aid when conditioned on foreign aid; however, when disaggregating foreign aid, the effect of foreign aid on the nexus was contradictory, while multilateral aid flow was positive. This result remained consistent despite the battery of checks.
The adoption of IFRS is expected to significantly affect the quality of global financial reporting and improve investment decisions. A major question that arises, therefore, is: does this stance hold when the time dimension, post IFRS adoption period (i.e. the number of years a country has adopted IFRS), is considered? Secondly, what role do institutions play in this relationship? A sample of 92 countries, comprising of both developed and developing countries, was selected for the period 2002-2010. The baseline model comprise of the macro-economic, structural covariates and measures of institutions, IFRS adoption and the interactions between institutions and IFRS adoption. The System Generalized Method of Moments estimation technique was used for the data estimations. The results show that IFRS is not able to attract much of FDI, and institutional development plays a substitutive role in this regard. This implies that as they pursue the adoption of IFRS, countries should drive at the development of their institutional capacity through policies that will support private investment, regulatory quality, and rule of law, property rights and protection and control of corruption.
This paper examines the roles comparability and transparency play in the relation between IFRS adoption and foreign direct investment (FDI). In this study, I disentangle the impact of transparency and comparability through the use of a natural experiment resulting from Mexico's adoption of IFRS in 2012. Greater comparability (adoption of IFRS by both domestic and foreign parties), controlling for transparency (adoption of IFRS by Mexico), increases FDI inflows as reported in column 5 in Table 4. Individually, greater transparency and comparability have been associated with increases in investment activity. However, it is unclear from the existing literature how transparency and comparability interact in the FDI setting. Consistent with prior findings, I find the adoption of IFRS is associated with increases in inbound foreign direct investment. This paper contributes to the literature on IFRS and FDI, specifically with respect to the role of common financial standards in increasing foreign investment activity.
Abstract: This thesis examines the impact of foreign aid on foreign direct investment (FDI) in Africa. Since there is no consensus in the literature regarding the effects of foreign aid on FDI in developing countries, the thesis examines the empirical relationship between foreign aid and FDI in Africa covering 41 African countries between 1995 and 2015. The analysis controls for market size, level of development, economic trade openness, political stability, and natural resources dependency. The model is estimated using a dynamic panel of System Generalized Method of Moments (GMM) estimation to address endogeneity problem. The model is applied to panel data compiled from publicly available databases. The results of this analysis show support of initial hypotheses that foreign aid can have positive impact on FDI. In addition, while recent studies tend to consider disaggregating aid sectors for infrastructure, and education among others, this thesis argues that aid function channels more impact on a country’s economy rather than being confined to targeted sectors. The results also indicate a significant positive impact associated with development aid channeled through multilaterals on FDI inflows. Consequently, governments’ policies to increase FDI must account for efficient utilization of foreign aid where as policies need to be developed not in isolation from each other. In addition, development partners should channel more funds through multilateral institutions to maximize the effectiveness of foreign aid.
The globalization of the world economy is accompanied by changes in volume and structure of international trade, capital flows and human migration. The paper focuses on theoretical aspects of recent changes in the area of international harmonization of accounting through the adoption of the International Financial Reporting Standards (IFRS), migration and foreign direct investments with the emphasis on their mutual interdependencies.
The interaction of foreign aid and foreign direct investment is an important issue for developing countries in Africa. I probe into the mediating role of institutional quality and financial development using a panel data set of 47 countries over the period 1996-2016. I find that the effectiveness of foreign aid in attracting foreign direct investment is greater in countries with better institutional quality and sound financial development. The implications for policy are outlined.
During the 1970s and 1980s, developing countries, skeptical of foreign investment, imposed several barriers on entry of foreign capital. However, the late 1980s and 1990s marked the onset of globalization, which integrated the whole world into a single global economy. The once-conservative developing nations, realizing the multifarious benefits of foreign direct investment (FDI), began encouraging entry of foreign firms, using various incentives, such as tax holidays, production subsidies, cash grants, labor training grants, and import duty exemptions. Gradually, FDI and foreign aid became two very important sources of foreign capital for these capital-constrained economies. This dissertation is focused on studying if there is any kind of relationship between foreign aid and private investment in recipient countries. FDI is a decision made by foreign investors on the basis of profitability of investment, whereas foreign aid is a political decision made by governments of donor countries on the basis of need for financial assistance by developing countries. We model foreign aid as an exogenous factor in allocation of foreign direct investment, along with other variables, to estimate the effect of aid on investment. Among the factors affecting FDI, infrastructure is considered to be an important one, in allocation of funds across developing countries. This dissertation is arranged as follows. In chapter 2, we introduce the term ``socioeconomic'' infrastructure and create an index, by combining several components of infrastructure, using the multivariate technique of principal components. Prior to creating the index, we employ the technique of multiple imputation to deal with missing data. Our measure of socioeconomic infrastructure contains elements of physical infrastructure, such as transportation facilities, telecommunication facilities, consumption demand for energy and electricity, as well as social infrastructure components, such as voice and accountability, political stability and the absence of violence and terrorism, rule of law, control of corruption, government effectiveness, and regulatory quality. In chapter 3, we develop a theoretical model to address the research question: Does foreign aid impede or encourage foreign direct investment in developing nations? Our theory demonstrates that foreign aid used by the recipient country in financing a public input (known as development aid) encourages foreign direct investment. We also empirically address the same issue by modeling foreign aid as a determinant of foreign direct investment, along with a host of other factors, including our computed index of socioeconomic infrastructure. Our analysis shows that public consumption aid (foreign aid used for financing consumption expenses) does crowd out private investment in current account surplus developing countries, whereas development aid crowds in private investment in the presence of sound macroeconomic, political, legal, and administrative machineries. In chapter 4, we build a panel econometric model to explain the factors underlying socioeconomic infrastructure in developing countries. Our results indicate that countries with higher per capita income, a prominently large government, high investment demand, and large government revenue tend to have better infrastructure.
""This book explores the importance of global stocks to economic structures and explores the effects that these holdings have on the financial status of nations. It also provides a systems approach to investment projects in a globalized and open society"--Provided by publisher"--
This paper empirically examines the foreign aid-FDI nexus. There appears to be a notion asserting that foreign aid plays a catalytic role in stimulating private capital inflows. The attempt in this paper is to examine the possible catalytic or deterring effects of foreign aid on FDI inflows with reference to Sri Lanka. We estimate a dynamic time series model that is derived from an economic model of determinants of FDI. The results demonstrate that foreign aid has a dynamic positive effect on FDI inflows.
