Extractive industries and corruption: Investigating the effectiveness of EITI as a scrutiny mechanism

The resource curse literature suggests that many countries have failed to exploit their natural resource wealth to finance the growth of their economies. Developing countries appear to be most affected. It is believed that poor governance, including lack of transparency, poor accountability to citizens and corruption, are the main culprits. In 2002, an international initiative sponsored by the UK government and backed by activist groups launched the Extractive Industries Transparency Initiative (EITI) with a view to mitigating the potential negative effects of resource wealth. The objective of this study is to investigate the effectiveness of this initiative that has gained much traction as a scrutiny mechanism for corruption control. In particular, this paper addresses two key questions: First, what are the observable factors that lead a country to voluntarily join the EITI? Second, does EITI membership leads to greater corruption control? Using the Worldwide Governance Indicators (WGI) control of corruption index, we find that EITI membership has not resulted in reduced corruption scores.