The influence of IFRS and institutional quality on economic growth: empirical evidence in the GCC countries using panel ARDL analysis

Mujalli, Abdulwahab; Wani, Mohammad Jibran Gul; Almgrashi, Ahmed; Ahmed, Irfan; Asiri, Nasser Article The influence of IFRS and institutional quality on economic growth: empirical evidence in the GCC countries using panel ARDL analysis Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Mujalli, Abdulwahab; Wani, Mohammad Jibran Gul; Almgrashi, Ahmed; Ahmed, Irfan; Asiri, Nasser (2024) : The influence of IFRS and institutional quality on economic growth: empirical evidence in the GCC countries using panel ARDL analysis, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 11, Iss. 1, pp. 1-19, https://doi.org/10.1080/23311975.2024.2396547 This Version is available at: https://hdl.handle.net/10419/326534 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Business & Management ISSN: 2331-1975 (Online) Journal homepage: www.tandfonline.com/journals/oabm20 The influence of IFRS and institutional quality on economic growth: empirical evidence in the GCC countries using panel ARDL analysis Abdulwahab Mujalli, Mohammad Jibran Gul Wani, Ahmed Almgrashi, Irfan Ahmed & Nasser Asiri To cite this article: Abdulwahab Mujalli, Mohammad Jibran Gul Wani, Ahmed Almgrashi, Irfan Ahmed & Nasser Asiri (2024) The influence of IFRS and institutional quality on economic growth: empirical evidence in the GCC countries using panel ARDL analysis, Cogent Business & Management, 11:1, 2396547, DOI: 10.1080/23311975.2024.2396547 To link to this article: https://doi.org/10.1080/23311975.2024.2396547 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 30 Aug 2024. Submit your article to this journal Article views: 982 View related articles View Crossmark data Citing articles: 1 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oabm20 Accounting, corporAte governAnce & Business ethics | reseArch Article Cogent Business & ManageMent 2024, VoL. 11, no. 1, 2396547 The influence of IFRS and institutional quality on economic growth: empirical evidence in the GCC countries using panel ARDL analysis Abdulwahab Mujallia, Mohammad Jibran gul Wania, Ahmed Almgrashia, irfan Ahmeda and nasser Asirib aDepartment of accounting and Finance, College of Business, Jazan university, Jazan, saudi arabia; bDepartment of accounting, College of Business, King Khalid university, abha, saudi arabia ABSTRACT We empirically investigated the effect of international financial reporting standards (iFrs) and institutional quality (iQ) on economic growth in the gcc region. We used panel data collected over 25 years (1998–2022) from six gcc countries—Bahrain, the united Arab emirates, saudi Arabia, Qatar, oman, and Kuwait. A panel cointegration test was used to investigate the relationships among the variables. this study confirms a long-run 15% decline in gDp following the adoption of iFrs in gcc nations. the short-term impact is positive, with a rise of 13% in the gDp. conversely, institutional quality negatively affected the gDp in the long and short run. We used an index for institutional quality based on six variables. it is recommended that policymakers take advantage of the immediate advantages of adopting iFrs while implementing long-term plans to reduce the projected decline in gDp. the economic repercussions of iFrs adoption and institutional quality should be carefully considered while at the same time emphasizing the advantages of open trade and low inflation in encouraging long-term growth. 1. Introduction the gulf cooperation council (gcc) is a geopolitical alliance comprising Bahrain, the united Arab emirates, saudi Arabia, Qatar, oman, and Kuwait. it serves as a platform for regional cooperation in politics and economics. gcc countries have their challenges but do share common issues, such as a still-growing private sector, restricted r&D investment, a poorly skilled workforce, and overreliance on the oil/petroleum industry (Mishrif, 2018). economic growth is significantly valued in gcc countries, considering its role in stabilizing the region, reducing poverty, and enhancing citizens’ lives, income, and wealth (AlKhars et al., 2022). Achieving these ambitions is critical if the challenge is to devise meaningful policies for them. the gcc countries have broadly adopted international Financial reporting standards (iFrs), as these standards are the most modern system for ensuring probity and transparency in cross-border transactions, honest business dealing, accountability, and efficiency in transactions (ebaid, 2022; tawiah & Boolaky, 2020). institutional quality is defined as the governance quality in a country, and its primary indicators are political stability, control of and consistent punishment of corruption, government effectiveness, accountability, upholding property rights, shareholder protection, and high-quality and enforced legislation/regulations (camargo, 2021; Digdowiseiso & sugiyanto, 2021; el-helaly et al., 2020a, 2020b). these two elements - iFrs and institutional quality - strongly influence economic activity in gcc countries. iFrs significantly guides economic growth in gcc countries by making organizations operate appropriately internationally (Al Mazroui et al., 2023; Almujamed et al., 2017). Meanwhile, the quality of institutions helps economic growth by enhancing a region’s competitiveness when organizations and their agencies, © 2024 the author(s). Published by informa uK Limited, trading as taylor & Francis group CONTACT abdulwahab Mujalli [email protected] Department of accounting and Finance, College of Business, Jazan university, Jazan, saudi arabia https://doi.org/10.1080/23311975.2024.2396547 this is an open access article distributed under the terms of the Creative Commons attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. the terms on which this article has been published allow the posting of the accepted Manuscript in a repository by the author(s) or with their consent. ARTICLE HISTORY received 1 February 2024 revised 13 August 2024 Accepted 20 August 2024 KEYWORDS gcc; economic growth; iFrs; institutional quality; pMg; panel ArDl SUBJECTS Business, Management and Accounting; economics; Finance 2 A. MuJAlli etAl. units, and staff are effective in their functions (Al-naser & hamdan, 2021). For these reasons, it is imperative to investigate the effect of iFrs and institutional quality on the economy of gcc countries, as economic growth is supposed to alleviate the critical challenges encountered in the region. the research on the influence of iFrs and institutional quality on economic growth in gcc nations lacks comprehensive studies, resulting in a deficit in knowledge in both the long and short term. prior studies on this subject have a restricted focus, mainly examining FDi. however, there is still a lack of comprehensive investigation of the impact of iFrs and institutional quality on economic growth. other studies have evaluated the effect of iFrs adoption and institutional quality and their influence on inward FDi in different countries (gasimov et al., 2023; sawyer, 2011). studies on gcc countries are specific to either iFrs or institutional quality but not both. For instance, Mameche and Masood (2021) addressed the economic impact of iFrs implementation but omitted institutional quality. siriopoulos et al. (2021) explored this topic by testing the adoption of iFrs and institutional governance but limited their work to only one economic variable, FDi. A recent study conducted by Almaqtari et al. (2021) appears to be the only work that covered this topic by concentrating on gcc and investigating the relationship between iFrs and institutional quality while considering the economy as a whole (Almaqtari etal., 2021). it is evident that research gaps exist regarding the limited availability of studies on the relationship between iFrs adoption, institutional quality, and economic growth in the gcc region. this study sought to address this discrepancy. in addition, existing researches tend to be narrow in scope because they do not investigate broader economic concepts or how iFrs and institutional quality shape them in the short and long run. While these concepts influence economic growth from the perspectives of monetary policy, comparative advantage, market failure, fiscal policy, and international trade, recent studies have predominantly concentrated on FDi, implying that their comprehensiveness is limited. neither iFrs nor institutional quality exists in isolation, so examining their influence together would only be fair. therefore, the main objective of this paper is to evaluate the economic influence of iFrs and institutional quality in the gcc region. iFrs is closely linked to institutional quality in growing the economy, and the two should be examined in the long and short run. iFrs alone cannot lead to sustained growth in gcc, which applies to institutional quality. Besides guaranteeing that financial statements are accurate and comparable worldwide, the region must have reputable and effective institutions to accomplish desired economic growth (siriopoulos et al., 2021). institutional quality complements the comparability and transparency elements accomplished through iFrs to accomplish an inclusive and sustainable economy (owusu et al., 2022). therefore, this study examines the association between iFrs and institutional quality in boosting the economy in the long and short run. the current study contributes to the existing literature in several ways. Firstly, this research fills the gap in the literature concerning the relationship between iFrs and institutional quality in supporting economic growth. this study considers the institutional quality index formulated using principal component analysis. the implications include the need for gcc countries to continue integrating iFrs into their economic policies and linking these standards with institutional quality to ensure economic growth. the findings will be significant for investors, policymakers, and researchers, given the need to focus on how economic growth occurs. While most have concentrated on FDi as the only significant economic feature of iFrs and institutional quality, this view is restricted because these components can help achieve growth. Furthermore, this study is of utmost importance due to its significant impact on economic growth in the gcc. it has the potential to address various challenges, such as expanding the private sector, limited r&D investment, a workforce lacking adequate skills or qualifications, and excessive reliance on the oil and petroleum industry. secondly, the study examines how iFrs, institutional quality, trade openness, and inflation influence economic growth. it will establish a foundation for future academics to investigate more economic aspects concerning iFrs and institutional quality impacts, such as unemployment rate, interest rate, consumer confidence index, and FDi. thirdly, this study contributes to better policy, encouraging relevant officials to make decisions based on the correct data emanating from the convergence of iFrs and institutional quality. the rest of this paper is structured as follows. the next section reviews the relevant literature and proposes the hypotheses. section 3 explains the empirical methodology and data. section 4 presents our estimation results. section 5 presents a discussion, and finally, section 6 concludes with a summary of cogent Business & MAnAgeMent 3 the key findings, policy suggestions, economic implications, academic/research implications, limitations, and avenues for future research. 2. Literature review several studies have examined gcc iFrs and institutional quality-related issues (Alsuhaibani, 2012; cieślik & hamza, 2022; Mameche & Masood, 2021; siriopoulos etal., 2021). Ali (2023) investigated the influence of institutional quality and foreign direct investment (FDi) on economic growth from an environmental quality perspective. his findings confirmed the positive effect of institutional quality on the economy but the negative effect on the environment due to the creation of pollution. Mameche and Masood (2021) conducted a study to analyze the macroeconomic data of the gcc region about the impact of iFrs adoption on FDi. their results revealed that countries may raise FDi inflows by 3% in the short run, but a 10.4% decrease occurs in the long run. in their work, cieślik and hamza (2022) sought to gain insights into iFrs adoption and institutional quality regarding FDi. their findings confirmed the positive relationship of iFrs adoption and institutional quality with foreign investment. Moreover, a few other studies reported the significance of institutional quality in attracting foreign investment and suggested that gcc governments should ensure that the quality of their institutions is not questioned (chidlow et al., 2021; cieślik & hamza, 2023; Dimitrova et al., 2020). Furthermore, Alsuhaibani (2012) examines the anticipated influence of iFrs adoption in saudi Arabia and finds that it influences company profits, revenues, regulatory bodies, and the overall business milieu. various gcc countries have implemented iFrs, which are now international regulations devised by the international Accounting standards Board (iAsB), intending to get investors to make sound investment decisions, document various ways of measuring business and financial performance in multiple countries, lower capital costs for firms, and reduce risks for investors. Moreover, iFrs can reduce the costs of generating financial information/data, offer more incentives for international investment, and permit resources to be deployed more efficiently internationally (lourenço & Branco, 2015). iFrs presents a set of accounting standards established in 2001 through iAsB, replacing the international Accounting standards (iAs) from 1973 to 2001 (Mameche & Masood, 2021). gcc countries adopted iFrs at various times, with Bahrain in 2001, the uAe in 2015, and saudi Arabia in 2017, while oman, Kuwait, and Qatar readily transitioned from iAs to iFrs. oman has had iAs since 1986, Kuwait since 1991, and Qatar since 1999 (Al-enzy etal., 2023). the iFrs adoption in gcc countries has promoted more asymmetrical information, which has enhanced FDi positively so that the information is trusted as being more reliable through comparability (Alnodel, 2016). institutional quality has many implications for the economic development of the gcc region. A study by hussen (2023) asserted that institutional quality determines the investment milieu’s conduciveness from the trade barriers viewpoint. economic growth is subject to the quality of institutions based on how they uphold and enforce the rule of law and punish corruption (Boğa, 2019). in addition, countries with well-established institutions that safeguard property rights and promote and oversee free market business practices have witnessed economic expansion. (hussen, 2023). For instance, sub-saharan African nations that have enhanced their institutional quality recorded 5% gDp growth and gDp per capita growth of 2% annually (hussen, 2023). the gcc could grow similar gDp and gDp per capita by incorporating institutional quality with iFrs. According to nnadi and soobaroyen (2015), institutional quality factors are more critical than iFrs standards in attracting FDi and driving other aspects of economic growth. For instance, several studies addressed the positive impact of iFrs on the economy, including the work of oppong and Aga (2019), Özcan (2016), li and shroff (2010), and Zaidi and huerta (2014). such influence can be seen through enhancing specific industrial sectors and using advanced technology in which foreign investors spend their money, improving the foreign exchange reserves (Borensztein etal., 1998; graham & Krugman, 1991). nevertheless, this relationship has rarely been investigated in the gcc countries, which is what this study intends to accomplish. in government effectiveness and political stability, institutional quality determines an economy’s ability to attract FDi (cieślik & hamza, 2022). the implication for the gcc is that it would still experience economic stagnation or little change even after iFrs adoption if the institutional quality is ignored (Dempere & pauceanu, 2022). institutional quality provides underlying governance structures that shape 4 A. MuJAlli etAl. other laws and regulations for the marketplace. consequently, countries adopting iFrs with high institutional quality enjoy higher economic growth (owusu et al., 2022). simultaneously, institutional quality motivates domestic businesses to react to new foreign companies, leading to more competition, which is assumed to be beneficial (hayat, 2019). specifically, high-quality institutions provide incentives to create innovative investment opportunities, enabling firms to meet the challenges of increased competition, thereby generating growth (Khalilov & Yi, 2021). institutional quality reflects the government’s indirect macro-control of economic growth and environmental protection. institutional quality is associated with strategies domestic firms devise to use cultural and legal rules and precedents to their advantage (Ali, 2023). For example, scholars found either direct or indirect positive influence between institutional quality and economic growth Acemoglu et al. (2008) valeriani and peluso (2011) and iqbal and Daly (2014). therefore, this study investigates the direct linkage in the gcc countries, which has been rarely investigated. 3. Hypotheses development 3.1. IFRS and economic growth the critical role of iFrs, which has led many nations to adopt such standards, is linked to its main feature of enhancing disclosure quality, which in turn attracts FDi in stock markets, and the economy is expected to flourish when foreign funds flow into a country (Özcan, 2016, oppong & Aga, 2019). the influence of FDi in gcc countries is evident in several ways, including advanced technology and enhancing specific industrial sectors in which foreign investors spend their money, which increases foreign exchange reserves (Borensztein etal., 1998; graham & Krugman, 1991). Moreover, it is significant to note that previous studies did not differentiate between the timing of iFrs and how it affects economic outlook, yet most of the evidence is for the short term (about ten years after iFrs adoption). With this argument, we make the following hypothesis for the short-run scenario: Hypothesis 1. IFRS have a positive association with economic growth in GCC countries in the short run. 3.2. Institutional quality and economic growth Although the positive influence of iFrs has been established in the discussion above and proven by the literature elsewhere in the world, such as li and shroff (2010), Zaidi and huerta (2014) and Özcan (2016), it is still not clear how such an influence would function in gcc countries since other studies proved the lack of such a relationship; for instance, according to Daske (2006), the implementation of iFrs in germany does not have a direct influence on economic growth. For this reason, it is vital to examine the role of iFrs adoption quality, yet quality should be addressed at an institutional level in the economies being investigated here. the literature has defined institutional quality in terms of governance procedures and policies, including accountability, government effectiveness, shareholder protection, corruption control, political stability, regulatory/legislative quality, and protection of property rights (camargo, 2021; Digdowiseiso & sugiyanto, 2021). institutional quality’s influence on economic growth can proceed in both ways. For instance, the findings reported by nawaz etal. (2014) indicated that the effect of institutional quality differs across Asian countries, depending on their state of economic development. Acemoglu etal. (2008) find that good institutional quality enhances a country’s usage of modern technology, which generally leads to economic growth. other studies support this positive impact, such as valeriani and peluso (2011) and iqbal and Daly (2014). conversely, several studies support the idea that institutional quality indicators can be harmful to economic growth (e.g., Kandil (2009); Aidt et al. (2008). these studies argued that some institutional quality indicators, for example, corruption, significantly, when they increase and are hard to detect, hinder economic growth despite the virtues of shareholder protection and political stability, which can positively bolster economic growth because it assures DFi providers. some institutional quality indicators can appear attractive or repellent to FDi providers, such as the rule of law, accountability, generous tax concessions, cuts in tariffs or excise duties, and relaxation of socialand environment-related penalties, as cogent Business & MAnAgeMent 5 noted by schneider and Frey (1985), Kimura and todo (2010) and Mottaleb and Kalirajan (2010). they argue that developing countries that provide friendly business environments for international firms are more likely to attract FDi. Based on this argument, we test the following hypotheses: Hypothesis 2. Institutional quality has a positive association with economic growth in GCC countries in the short run. it is worth mentioning that the above hypotheses were devised based on the short-run assumption, which empirical research supports the most because iFrs adoption improves the integrity and trustworthiness of financial statements and reduces information asymmetry in the short run, helping create better macroeconomic conditions (gordon et al., 2012, lungu et al., 2017, Kao, 2014, turki et al., 2017). nevertheless, the outcome of this situation is contingent upon the duration and pace at which countries embrace iFrs, as the timing and swiftness of adoption might provide varying outcomes. elmghaamez etal. (2020) carried out a study that analyzed the impact of early adoption of isAs on the financial sector. they used panel data from 110 countries spanning the years 1995 to 2014. their research indicated that early adoption of isA had a detrimental impact on several financial market indicators, except for a few indicators only observed in listed corporations that filed their financial statements using iFrs and were audited simultaneously by isAs. similarly, el-helaly et al. (2020a, 2020b) examined the impact of national corruption on the global implementation of iFrs. they analyzed data from 89 countries outside the european union, spanning 2003 to 2014. their research demonstrated a strong inverse (direct) correlation between the level of corruption and the speed and extent of iFrs adoption. conversely, elmghaamez et al. (2023) analyzed the economic outcomes of implementing isA based on the diffusion of innovation theory. they utilized data from 160 nations spanning 20 years. the findings confirmed the positive impact of early isA adoption on three economic indicators of the adopting countries: economic growth, FDi inflows, and exchange rate. in contrast, the late isA adoption positively influenced exports and interest rates, but it also harmed imports. in their seminal work, Mameche and Masood (2021) noted a distinction between a shortand a long-run adoption of irFs effect on FDi in the gcc bloc. there is a negative influence on FDi in the long run. hwang et al. (2018) explain that the influence of iFrs adoption can differ over time if economic and social circumstances vary. specifically, the impact of profits management and value relevance, observed in the initial phase following the implementation of iFrs, exhibited variations over time in countries with distinct legal frameworks and external investor protection mechanisms. Jamaani and Alidarous (2022) observed that iFrs does not favor the long-run performance of firms in the initial public offering (ipo) market. therefore, this study retests the above hypothesis with a negative influence in the long run. Hypothesis 3. IFRS have a negative association with economic growth in GCC countries in the long run. Hypothesis 4. Institutional quality has a negative (causal) association with economic growth in GCC countries in the long run. 4. Research design this part provides an explanation design for this research, including the specific methods and sources used for data collection. it also outlines the definitions and measures of both dependent and independent variables. in addition, it addresses the model framework utilized in this research and the estimating technique adopted to accomplish its objectives. 4.1. Data sources to examine the influence of institutional quality and iFrs on economic development, this study uses panel data collected over 25 years (1998–2022) from six gcc countries: Bahrain, the united Arab emirates, saudi Arabia, Qatar, oman, and Kuwait. this dataset comprised 150 observations. the nature of the data is quantitative (numerical in nature). Furthermore, annual statistics for all variables were sourced from credible secondary or already published data, specifically the World Bank’s World Development indicators 6 A. MuJAlli etAl. (2023), the international Monetary Fund (2023), and World governance indicators (2023). since the data is sourced from public platforms and is already published, no additional permission is required to use it for research purposes. table 1 shows a brief description of the variables of the study and their source. the dependent variable is represented by the natural logarithm of each country’s gDp in current us dollars, which serves as a proxy for economic growth. this decision is aligned with other existing studies, particularly those of razzaq etal. (2023), owusu etal. (2022), and oppong and Aga (2019). the independent variable under examination is the iFrs adoption. A dummy variable measures iFrs adoption, with a value of one for a year when the nation adopted iFrs and zero otherwise. A few vital studies by Beneish etal. (2015), gordon etal. (2012), and Bassemir and novotny-Farkas (2018) used iFrs in a binary form. it is essential to note that the iFrs adoption differed for each gcc country (table 2). the data on institutional quality is obtained from the Worldwide governance indicators (Wgi) created by Kaufmann et al. (2011). six indices were employed to measure overall institutional quality: corruption, political stability, rule of law, lack of violence, government efficacy, voice and accountability, and regulatory quality (Agbloyor et al., 2016; Kose et al., 2011). these indices are measured on a scale between 2.5 and −2.5, where higher values signify superior institutional quality (e.g., a country with a score of 2.5 exhibits the best institutional quality, while −2.5 indicates the worst). however, principal component Analysis (pcA) is used to derive a comprehensive index for this variable, which does not range from −2.5 to 2.5 scale. using pcA, a single weighted index was constructed for the six specific institutional quality indicators (instQ). the positive instQ refers to institutional solid quality, while negative numbers indicate weak institutional quality, which impacts economic growth accordingly. the justification for the above argument is that high-quality institutions will effectively distribute resources to provide economic value for all economic participants. this involves ensuring that Table 1. Variable descriptions. Variable name symbol Definition unit type source gross Domestic Product gDP the total value contributed to the economy comprises the production of goods and services minus the value required for production/ manufacture. gDP (current us$) Dependent World Bank (2023) international Financial Reporting standard. iFRs international accounting standard Binary independent iFRs and ias plus institutional Quality index instQ the institutional quality index encompasses the rule of law, voice and accountability, government effectiveness, political stability, absence of violence, control of corruption, and regulatory quality index independent World governance indicator (2023) trade openness to trade refers to the combined value of goods and services exported and imported, measured as a percentage of gross domestic product (gDP). trade (% of gDP) Control World Bank (2023) inflation inF inflation, gauged by the consumer price index (CPi), indicates the annual percentage shift in the average cost. inflation, consumer prices (annual %) Control international Monetary Fund (2023) Table 2. iFRs adoption. gCC countries adoption year saudi arabia 2017 Bahrain 2010 oman 2001 Kuwait 2001 Qatar 2002 united arab emirates 2015 source: international financial reporting standard website (www.ifrs.org). cogent Business & MAnAgeMent 7 institutions take the lead in consistently designing, monitoring, and improving policies and strategies to enhance local industries’ competitiveness sustainably. this approach mitigates the subjectivity bias that may arise when a particular variable is considered a proxy for a specific aspect. For example, when assessing institutional quality, some studies have used either political stability or control of corruption as measures, and excluding one while including the other may introduce subjectivity bias by overlooking the multidimensional aspects of institutional quality (Arvin etal., 2021; ghalia etal., 2019; Kim et al., 2018). the study also included control variables that were identified as predictors of economic development, consistent with the research by Agbloyor etal. (2016), oppong and Aga (2019), owusu etal. (2022), and Zaman et al. (2021). previous studies have highlighted savings, trade openness, financial market development, population increase, and inflation as critical growth factors. in this study, trade openness and inflation are the control variables for economic growth. trade openness is calculated by adding the total value of imports and exports and scaled by gDp. conversely, inflation is assessed using the consumer price index (cpi) and represents the annual percentage change in the average cost of goods and services. 4.2. Model specification to investigate the effect of iFrs and institutional quality on the economy, we write the following basic formulation in functional form in line with existing studies (oppong & Aga, 2019; owusu et al., 2022). GDP IFRS INSTQ TO INF = () f, ,, (1) Where gDp is the gross domestic product, iFrs denotes the adoption of international financial reporting standards, instQ represents the institutional quality index, to is trade openness, and inF stands for inflation. this baseline equation (1) considers the relationship between institutional quality and iFrs adoption regarding economic growth. the institutional quality index is an indicator of institutional quality, and the variable descriptions and data sources are summarized in table 1. control variables are directly or indirectly related to economic growth and constitute the core elements of overall economic development. therefore, equation (1) is modified and logged to help interpret the coefficients. GDP IFRS INSTQ TO INF it it it it it it =+ + ++ + ββ β β β ε 01 2 3 4 (2) this study covers the period from 1998 to 2022 for the six gcc countries. the subscripts i and t point out the country and time correspondingly; e denotes the stochastic error term, and ß0 denotes the intercepts. to test the proposed hypotheses, we conducted preliminary tests. initially, this involves examining cross-sectional Dependence in panel data using the cross-sectional dependence (cD) test presented by pesaran et al. (2004). subsequently, we executed a homogeneity test, as suggested by pesaran and Yamagata (2008), to assess the homogeneity among the selected variables. Both tests are crucial for selecting appropriate unit root tests. When the null hypothesis is refuted, the cross-sectional dependence test, which employs pesaran’s cD, offers insight into the existence of cross-sectional dependence among the variables across all sections and countries. the homogeneity results were based on the adjusted delta tilde. if the null hypothesis is rejected, the homogeneity condition of the panel is rejected; alternatively, panel heterogeneity is accepted. in addition, unit root tests are selected depending on their outcomes to confirm that the variables are stationary and prevent deceptive regressions. if there is cross-sectional dependence, it is more suitable to employ second-generation unit root tests, such as the cips and cADF, as they can address this issue. several first-generation unit root tests are conducted if cross-sectional dependence does not exist. According to Danish and Wang (2018), the traditional regression models of FMols and Dols do not consider the cross-sectional assumption. hence, the pooled mean group (pMg) estimate approach is employed in this empirical study to determine whether the estimated model dictates how institutional quality and iFrs adoption shape economic development in gcc nations. the hypothesis of the research involves the validation of long-run and short-run relationships between the variables. 14 A. MuJAlli etAl. in the short-run context. error correction term (ect) analysis is critical for determining a model’s long-run equilibrium. the negative and significant ect coefficient (−0.305) indicates a realistic long-run equilibrium, with gDp reverting to its equilibrium level at the 30% annual adjustment rate. this equates to 3.3 years for the economy to change and stabilize, emphasizing the durability of long-run equilibrium relationships. 7.1. Economic implications the negative association between gDp and iFrs adoption and instQ implies possible economic challenges and adverse outcomes in the future. this suggests that adopting iFrs and improving institutional quality, intended to increase economic performance, may have had a better impact than expected. policymakers must thoroughly evaluate the expenses and advantages of implementing global accounting standards and investing in enhancing institutional quality to guarantee their beneficial contribution to stable economic growth. the positive connection between gDp and to underscores the significance of implementing liberal trade policies for fostering economic growth in gcc countries. An increase of 1% in trade openness is correlated with a long-term rise of 0.6% in gDp, suggesting that initiatives to encourage international commerce can substantially benefit economic performance. policymakers must prioritize measures that make trade more accessible, such as lowering tariffs, enhancing trade infrastructure, and encouraging industries that focus on exporting. this will allow them to take full advantage of the potential advantages of trade openness regarding gDp growth. on the other hand, the strong positive association between gDp and inF highlights the importance of low inflation in promoting economic expansion in gcc countries. An incremental rise of 1% in inflation is correlated with a significant 6% surge in gDp over an extended period, suggesting that moderate inflation might stimulate economic activity and investment. policymakers should strive to sustain a moderate level of inflation to bolster economic expansion while concurrently adopting steps to alleviate the adverse consequences of excessive inflation, such as price volatility and diminished buying capacity. 7.2. Academic/research implications this study offers valuable insights into the intricate dynamics of gcc countries’ economies, specifically regarding the influence of international accounting standards, institutional quality, trade openness, and inflation on gDp. these insights can be valuable for researchers and scholars in economics and finance, helping them better understand the factors that affect economic performance in gcc nations. they can also use these insights to identify potential areas for further research and exploration. it is vital to consider long-term and short-term dynamics when examining the connection between economic variables, as emphasized in the study. the different longand short-term effects of iFrs adoption and instQ on gDp show that these factors may change over time, calling for different ways of analyzing them. researchers need to use reliable econometric techniques, such as ect analysis, to understand the changes in economic relationships over time effectively. the current study results have significant consequences for formulating economic policies in gcc countries. policymakers must thoroughly evaluate the impact of implementing international accounting standards, enhancing institutional quality, fostering trade openness, and controlling inflation on economic development and stability. policymakers can enhance the efficacy of policies that foster inclusive economic development in gcc countries by integrating empirical facts and insights from academic research. in conclusion, the findings of this study contribute to a better comprehension of the economic dynamics of gcc countries, and their policy implications are significant. it is strongly recommended to carefully consider the economic repercussions of iFrs adoption and institutional quality, while emphasizing the positive influence of open trade and low inflation in encouraging long-term economic growth. the insights can help guide strategic policy decisions and encourage a balanced approach to regional economic reform. cogent Business & MAnAgeMent 15 7.3. Limitations and avenues for future research the current study used panel cointegration tests to show the association between variables. however, the study’s cross-sectional design raises questions regarding endogeneity and causation. unaccounted variables or the possibility of causality in the other direction may impact the observed connections between the adoption of iFrs, the quality of institutions, and economic growth. Future studies could utilize advanced methodologies such as instrumental variable approaches, dynamic panel data models, or structural equation modeling to more effectively unravel the causal linkages between adopting iFrs, institutional quality, and economic growth in the gcc region. on the other hand, the current findings are limited to the region of gcc and might not be readily transferable to other countries or regions with distinct economic, regulatory, and institutional circumstances. hence, it is advisable to be cautious when extrapolating the findings to other countries in the gcc. in order to improve the applicability of the results, future studies could perform comparative assessments across various regions or countries with different economic, regulatory, and institutional frameworks. Ethical approval and consent to participate not applicable. Consent for publication not applicable. Author’s contributions AW contributed to the study conception, MJGW research methodology, and data analysis. AA and IA wrote the first draft of the manuscript and revised it. NA and AW performed data collection and interpretation of the data. AW and AA read and approved the final manuscript. All the authors agreed to be accountable for all aspects of the work. Disclosure statement the authors whose names are listed in this paper certify that they have no affiliations with or involvement in any organization or entity with any financial interest (such as honoraria; educational grants; participation in speakers’ bureaus; membership, employment, consultancies, stock ownership, or other equity interest; and expert testimony or patent-licensing arrangements), or non-financial interest (such as personal or professional relationships, affiliations, knowledge or beliefs) in the subject matter or materials discussed in this manuscript. Disclosure statement no potential conflict of interest was reported by the author(s). Funding no sources of funding were used to conduct this study or prepare this manuscript. About the authors Dr. Abdulwahab Mujalli serves as an Assistant professor of internal Auditing and Accounting in the Department of Accounting and Finance at the college of Business, Jazan university, saudi Arabia. his research portfolio is centered around pivotal topics, including internal auditing, corporate governance, international Financial reporting standards (iFrs), Accounting information systems (Ais), and the pedagogy of Accounting education. Dr. Mujalli’s scholarly contributions aim to bridge the gap between theoretical frameworks and practical applications in the field, fostering a deeper understanding of these critical areas within the global accounting community. Mohammad Jibran Gul Wani is a ph.D. student in the Azman hashim international Business school of the universiti teknologi Malaysia. he has a MBA degree from glyndwr university, united Kingdom. his research interest includes 16 A. MuJAlli etAl. accounting reporting, economic growth, tourism development and environmental sustainability. he currently works as a faculty member in the Business college at Jazan university, saudi Arabia. Dr. Ahmed Almgrashi is an Assistant professor of Accounting within the Department of Accounting and Finance at the college of Business, Jazan university, saudi Arabia. his research expertise spans several critical areas, including Accounting information systems (Ais), corporate governance, auditing practices, and advancements in Accounting education. Dr. Almgrashi’s work is dedicated to exploring and advancing these domains, contributing to both academic scholarship and practical applications in the field of accounting and finance. Dr. Irfan Ahmed is an Assistant professor at Jazan university, saudi Arabia. he obtained his ph.D. in economics and Management from the university of Macerata, italy. his research interests include financial economics and public economics. he has published several research articles in quality peer-reviewed international journals. Dr. Nasser Asiri is currently working as an assistant professor of accounting at King Khaild university and has extensive work experience in corporate governance, internal auditing, accoral base accounting and spending efficiency in public sector, he is a grcp and grcA certified. his primary research areas encompass topics related to corporate governance, environmental management accounting, international Financial reporting standards (iFrs), accoral base accounting and spending efficiency in public sector. Data availability statement the datasets used and/or analyzed during the current study are available from the corresponding author on reasonable request. References Acemoglu, D., Johnson, s., robinson, J. A., & Yared, p. (2008). income and democracy. American Economic Review, 98(3), 808–842. https://doi.org/10.1257/aer.98.3.808 Agbloyor, e. K., gyeke‐Dako, A., Kuipo, r., & Abor, J. Y. (2016). Foreign direct investment and economic growth in ssA: the role of institutions. 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