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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: jamie.fraser@graduateinstitute.ch
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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

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