Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-05T15:32:15.406Z Has data issue: false hasContentIssue false
  • English
  • Français

Worth its weight in gold: is the extractive industries transparency initiative a credible signalling mechanism to investors?

Published online by Cambridge University Press:  11 November 2021

Jamie Fraser Open the ORCID record for Jamie Fraser [Opens in a new window]
Jamie Fraser*
Affiliation:
Department of International Economics, The Graduate Institute of International and Development Studies, Geneva, Switzerland
*
*Corresponding author. E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper seeks to understand the link between resource governance and investor expectations in resource-rich countries. We test whether voluntary membership in the Extractive Industries Transparency Initiative (EITI), a public-private partnership that promotes transparency and accountability in the extractives sector, behaves as a credible signalling mechanism to investors that governments in resource-rich countries can manage resource revenue and adhere to sustainable fiscal policies in the medium and long run. Using an interrupted time series analysis coupled with a fixed effects model, we examine whether investor expectations on the price of sovereign debt behave as a credible signalling mechanism in the presence of certain conditions. Results indicate that in some cases there is a significant change in spread on the default price of sovereign debt as a result of announcement of either EITI candidacy or EITI compliance. However, it is clear that EITI membership alone is not a sufficient signal to investors that a country can effectively manage its resource revenues in the long run because the result of EITI implementation is heavily influenced by country-specific conditions.

Keywords

economic developmentenvironmental economicsextractive industries transparency initiativemacroeconomic policypublic private partnerships

JEL classification

E62: Fiscal Policy E61: Policy Objectives • Policy Designs and Consistency • Policy Coordination F63: Economic Development E64: Incomes Policy • Price Policy G15: International Financial Markets
Type
Research Article
Information
Environment and Development Economics , Volume 27 , Issue 5 , October 2022 , pp. 436 - 450
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Andonova, LB, Faul, MV and Piselli, D (in press) Partnerships for Sustainability: Pathways to Effectiveness. Abingdon: Routledge.Google Scholar
Atsalakis, GS, Bouri, E and Pasiouras, F (2020) Natural disasters and economic growth: a quantile on quantile approach. Annals of Operations Research 306, 83–109.10.1007/s10479-020-03535-6CrossRefGoogle Scholar
Block, SA and Vaaler, PM (2004) The price of democracy: sovereign risk ratings, bond spread and political business cycles in developing countries. Journal of International Money and Finance 23, 917–946.10.1016/j.jimonfin.2004.05.001CrossRefGoogle Scholar
Corrigan, CC (2017) The effects of increased revenue transparency in the extractives sector: the case of the extractive industries transparency initiative. The Extractive Industries and Society 4, 779–787.10.1016/j.exis.2017.03.004CrossRefGoogle Scholar
David-Barrett, L and Okamura, K (2013) The transparency paradox: why do corrupt countries join EITI? Working Paper No. 38, European Research Centre for Anti-Corruption and State-Building. Available at https://eiti.org/document/transparency-paradox-why-do-corrupt-countries-join-eiti.Google Scholar
Extractive Industries Transparency Initiative (EITI) (2019a) Publications. Available at https://eiti.org/publications.Google Scholar
Extractive Industries Transparency Initiative (EITI) (2019b) EITI Standard. Available at https://eiti.org/document/eiti-standard-2019#r.Google Scholar
Frankel, J (2012) The natural resource curse: a survey of diagnoses and some prescriptions. HKS Faculty Research Working Paper Series RWP12-014, John F. Kennedy School of Government, Harvard University.Google Scholar
Furstenberg, S (2015) Consolidating global governance in nondemocratic countries: critical reflections on the Extractive Industries Transparency Initiative (EITI) in Kyrgyzstan. The Extractive Industries and Society 2, 462–472.CrossRefGoogle Scholar
Gelb, A, Eifery, B and Tallroth, BN (2002) The political economy of fiscal policy and economic management in oil-exporting countries. Policy Research Working Papers, The World Bank, doi: 10.1596/1813-9450-2899CrossRefGoogle Scholar
ITIE du Sénégal (2013) Rapport de conciliation ITIE Sénégal 2013. Available at http://itie.sn/rapport-2013/ (in French).Google Scholar
Kasekende, E, Abuka, C and Sarr, M (2016) Extractive industries and corruption: investigating the effectiveness of EITI as a scrutiny mechanism. Resources Policy 28, 117–128.10.1016/j.resourpol.2016.03.002CrossRefGoogle Scholar
Malden, A (2017) A safer bet? Evaluating the effects of the extractive industries transparency initiative on mineral investment climate attractiveness. The Extractive Industries and Society 4, 788–794.10.1016/j.exis.2017.01.008CrossRefGoogle Scholar
Ocheje, PD (2006) The Extractive Industries Transparency Initiative (EITI): voluntary codes of conduct, poverty and accountability in Africa. Journal of Sustainable Development in Africa 8, 222–239.Google Scholar
Öge, K (2016a) To disclose or not to disclose: how global competition for foreign direct investment influences transparency reforms in extractive industries. Energy Policy 98, 133–141.10.1016/j.enpol.2016.08.019CrossRefGoogle Scholar
Öge, K (2016b) Which transparency matters? Compliance with anti-corruption efforts in extractive industries. Resources Policy 49, 41–50.10.1016/j.resourpol.2016.04.001CrossRefGoogle Scholar
Öge, K (2017) Transparent autocracies: the Extractive Industries Transparency Initiative (EITI) and civil society in authoritarian states. The Extractive Industries and Society 4, 816–824.10.1016/j.exis.2016.12.010CrossRefGoogle Scholar
Penalver, A and Thwaites, G (2006) Fiscal rules for debt sustainability in emerging markets: the impact of volatility and default risk. In SSRN Electronic Journal, Working Paper No 307, Bank of England, doi: 10.2139/ssrn.933299CrossRefGoogle Scholar
Schmaljohann, M (2013) Enhancing foreign direct investment via transparency? Evaluating the effects of the EITI on FDI. Discussion Paper Series No. 538, Department of Economics, University of Heidelberg.Google Scholar
Sequeira, AR, McHenry, MP, Morrison-Saunders, A, Mtegha, H and Doepel, D (2016) Is the Extractive Industry Transparency Initiative (EITI) sufficient to generate transparency in environmental impact and legacy risks? The Zambian minerals sector. Journal of Cleaner Production 129, 427–436.10.1016/j.jclepro.2016.04.036CrossRefGoogle Scholar
Sovacool, BK and Andrews, N (2015) Does transparency matter? Evaluating the governance impacts of the Extractive Industries Transparency Initiative (EITI) in Azerbaijan and Liberia. Resources Policy 45, 183–192.10.1016/j.resourpol.2015.04.003CrossRefGoogle Scholar
Sovacool, BK, Walter, G, van de Graaf, T and Andrews, N (2016) Energy governance, transnational rules, and the resource curse: exploring the effectiveness of the Extractives Industries Transparency Initiative (EITI). World Development 83, 179–192.10.1016/j.worlddev.2016.01.021CrossRefGoogle Scholar
S&P Global Market Intelligence (2018) Sovereign Credit Ratings 2018. S&P Global.Google Scholar
Sturesson, A and Zobel, T (2015) The Extractive Industries Transparency Initiative (EITI) in Uganda: who will take the lead when the government falters? The Extractive Industries and Society 2, 33–45.CrossRefGoogle Scholar
Sy, ANR (2002) Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals. Emerging Markets Review 3, 380–408.10.1016/S1566-0141(02)00043-2CrossRefGoogle Scholar
Tanner, E and Samake, I (2006) Probabilistic sustainability of public debt: a vector autoregression approach for Brazil, Mexico and Turkey. IMF Working Paper, IMF Institute and Africa Department, International Monetary Fund.10.5089/9781451865554.001CrossRefGoogle Scholar
Tornell, A and Lane, PR (1999) The voracity effect. American Economic Review 89, 22–46.10.1257/aer.89.1.22CrossRefGoogle Scholar
Transparency International (2019) Corruption Perceptions Index 2018 [database]. Transparency International. Available at https://www.transparency.org/cpi2018.Google Scholar
Van der Ploeg, F and Poelhekke, S (2009) Volatility and the natural resource curse. Oxford Economic Papers 61, 727–760.CrossRefGoogle Scholar
Van der Ploeg, F and Venables, AJ (2012) Natural resource wealth: the challenge of managing a windfall. Annual Review of Economics 4, 315–337.CrossRefGoogle Scholar
Villar, PF and Papyrakis, E (2017) Evaluating the impact of the Extractive Industries Transparency Initiative (EITI) on corruption in Zambia. The Extractive Industries and Society 4, 795–805.10.1016/j.exis.2017.01.009CrossRefGoogle Scholar
World Bank Group (2016) Project Paper on a Proposed Grant. Report Number PP1924. Available at https://documents1.worldbank.org/curated/en/373311474563720646/pdf/PP1924-PJPR-OUO-9-Project-Paper-has-been-approved-P160022.pdf.Google Scholar
World Bank Indicators (2019a) GDP growth (annual %). [database]. World Bank Group. Available at https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.Google Scholar
World Bank Indicators (2019b) Total natural resources rents (% of GDP). [database]. World Bank Group. Available at https://data.worldbank.org/indicator/NY.GDP.TOTL.RT.ZS.Google Scholar
World Bank Indicators (2020a) Current account balance (% of GDP) [database]. World Bank Group. Available at https://data.worldbank.org/indicator/BN.CAB.XOKA.CD.Google Scholar
World Bank Indicators (2020b) External debt stocks, total (DOD, current US$) [database]. World Bank Group. Available at https://data.worldbank.org/indicator/DT.DOD.DECT.CD.Google Scholar
World Bank Indicators (2020c) External debt stocks, short-term (DOD, current US$) [database]. World Bank Group. Available at https://data.worldbank.org/indicator/DT.DOD.DSTC.CD.Google Scholar
World Bank Indicators (2020d) GDP per capita, (current US$) [database]. World Bank Group. Available at https://data.worldbank.org/indicator/NY.GDP.PCAP.CD.Google Scholar
World Bank Indicators (2020e) Inflation, consumer prices (annual %) [database]. World Bank Group. Available at https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG.Google Scholar
Zhang, Y, Garcia-Quiles, V and Thelen, N (2015) Riding the commodity rollercoaster: natural resource management in the context of increasing commodity price volatility. Comparative Economic Studies 57, 305–325.10.1057/ces.2014.41CrossRefGoogle Scholar