Exploring the effect of International Public Sector Accounting Standards adoption on national resource allocation efficiency in developing countries

Abstract

International capital providers such as the World Bank suggest that inefficient resource allocation in developing countries remains a major challenge for borrowing countries. Therefore, the purpose of this study is to examine whether the adoption of International Public Sector Accounting Standards (IPSAS) improves the resource allocation efficiency of developing countries. A robust econometric modeling including fixed effect and Two-Step Generalized Method of Moments is employed on a sample of 64 developing countries between 2005 and 2021. The results are not sensitive to potential endogeneity issues. The findings indicate that the IPSAS coefficient is significantly and positively correlated at a 5% level or higher. This suggests a strong and significant relationship between IPSAS adoption and resource allocation, indicating that using IPSAS improves efficient resource allocation. Additionally, the resource allocation coefficient is positive and highly significant at a 5% level or higher. These results are particularly notable in countries with low bureaucratic quality, suggesting that IPSAS adoption strengthens policies and regulations in the public sector’s financial structure, ultimately leading to more efficient resource allocation. Therefore, these findings imply that adopting IPSAS is crucial for developing countries to ensure efficient resource allocation and attract international capital providers.