DOES JOINING THE EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE HAVE AN IMPACT ON EXTRACTIVE AND NON-EXTRACTIVE FDI INFLOWS?

Abstract

The Extractive Industries Transparency Initiative (EITI) invites resource-rich countries to voluntarily publish the payments they receive from corporations and open their books to the scrutiny of certified auditors. In return, the EITI offers potential members a seal of approval inherent to EITI candidacy or compliance that will signal lower political risk to investors, thereby attracting foreign direct investment (FDI) inflows. This thesis uses Arellano-Bond General Method of Moments estimation to find that changes in EITI status are associated with net FDI inflow increases of over 50 percent on the year of the status change, holding the usual determinants of FDI inflows constant. This paper attempts to determine whether these effects are different across primary, secondary, and tertiary sectors of the economy but does not find significance at conventional levels for this portion of the analysis. These results suggest that countries that want to attract FDI inflows can do so by joining the EITI and that the incentive structure of the EITI is valid because signaling transparency can attract FDI inflows.