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How does implementing the Extractive Industries Transparency Initiative (EITI) affect economic growth? Evidence from developing countries

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  • Neerbewendé Abdoul Rachid Pafadnam

    (CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)

Abstract

Although there is no consensus on the relationship between natural resource abundance and economic growth, much of the economic literature suggests that natural resource abundance negatively affects economic growth in developing countries, leading to the resource curse theory. This situation led the international community to create the Extractive Industries Transparency Initiative (EITI) in 2003 to promote the effective contribution of natural resources to economic growth through a process involving governments, extractive industries, and civil society. Considering 99 developing countries from 1995 to 2019 and applying recent heterogeneity-robust difference-in-differences (DID) estimators, we find a positive and statistically significant relationship between EITI implementation and economic growth. Several robustness checks support this result.Most interestingly, the analysis of EITI's dynamic effects reveals that these effects occur only in the short and medium terms. In addition, we tested several potential transmission channels and identified the increase in foreign direct investment and the rise in resource revenue as the main transmission channels. Moreover, we postulate and investigate four possible explanations behind the EITI's mixed results on long-term growth: the lack of evidence of a negative relationship between natural resource abundance and long-term economic growth over the study period, a possible increasing reliance on non-resource taxes, a possible signaling effect targeted by member countries, and the lack of effect of EITI implementation on reducing corruption. Finally, the document provides economic policy recommendations for better governance in the management of natural resources in order to increase their contribution to development financing. Furthermore, improving governance in managing critical minerals is vital to avoid a "new curse of critical minerals".

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  • Neerbewendé Abdoul Rachid Pafadnam, 2024. "How does implementing the Extractive Industries Transparency Initiative (EITI) affect economic growth? Evidence from developing countries," Post-Print hal-04727043, HAL.
    • Handle: RePEc:hal:journl:hal-04727043
    DOI: 10.1016/j.ejpoleco.2024.102584
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    More about this item

    Keywords

    Governance Natural resources Economic growth Extractive industries transparency Resource curse Heterogeneous and dynamic treatment effects. JEL Classification: G38 O13 O19 O43 Q32 Q38; Governance; Natural resources; Economic growth; Extractive industries transparency; Resource curse; Heterogeneous and dynamic treatment effects.; JEL Classification: G38; O13; O19; O43; Q32; Q38;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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