Assessing the impact of EITI membership

New research finds that EITI membership has a positive impact on economic growth for resource-dependent countries, but has not yet been observed to have led to a significant improvement in the control of corruption.

The logic behind the EITI is that by increasing demands for transparency in the extractive industries, citizens will benefit more from their natural resource wealth because a more informed citizenry will hold their leaders accountable for how they manage the common resources (see the EITI Principles).

Countries that over-rely on natural resources in their economy are at risk for slow economic growth and increased corruption. Therefore, if transparency is a tool that helps to alleviate the negative effects of resource wealth, membership in the EITI should lead to improvements in economic development and control of corruption.

This study assesses the impact of EITI membership on these two factors. Using panel data from 1997/98 to 2014, the study estimates a fixed effects model to evaluate the impact of joining the EITI on changes in economic and corruption indicators, conditional on a country’s level of resource dependence.

Measuring impact on control of corruption remains a challenge

The study finds that the EITI has had a significant and positive effect on economic development in member states since its inception, but these effects have not yet been translated to observable and significant improvements in control of corruption.

The lack of an observable effect of EITI membership on corruption could be due to the difficulty of accurately measuring changes in perceptions of corruption (and quality of institutions in general) over a short period of time. However, the other explanation is that the EITI is not improving control of corruption in a meaningful way, due to a lack of focus on government expenditures, low reporting standards, or inability to effectively bring civil society into the process. Therefore, increases in foreign aid or foreign direct investments may be better explanations for the observed economic improvements in EITI member states.

Future research should continue to focus on understanding the nuance of the EITI’s direct effect on institutions.

Is it worth for resource-dependent countries to join the EITI?

Even if significant improvements in corruption have yet to be realized in member states, the economic benefits alone have important implications for resource-rich countries who are considering joining the EITI and for resource importing countries who are considering regulating revenue transparency in the extractive industries. 

 

This article was written by Caitlin Corrigan, PhD, was published in the journal “The Extractive Industries and Society”. She is a research associate and instructor at the University of Pittsburgh. You can access the article here.

This publication was adapted from a study submitted in Spring 2016 to the US Securities and Exchange Commission as part of the implementation of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is aimed at regulating revenue transparency in the extractive industries.