Does transparency matter? Evaluating the Impacts of the Extractive Industries Transparency Initiative (EITI) on Deforestation in Resource-rich Developing Countries

Abstract

The exploitation of extractive industries poses a serious threat to the environment. However, the exploitation of extractive industries through an equitable and transparent resource tax regime can also finance alternative livelihoods that can prevent forest loss in the short, medium, or long term. Through two main channels, this paper assesses the “treatment effect” of implementing the Extractive Industries Transparency Initiative (EITI) standard on deforestation in resource-rich developing countries. The first concerns a fair and transparent resource tax regime and environmental payments that can prevent forest loss. The second consists of improving citizens' institutions and living standards through increased government revenue. This study is the first to provide an empirical impact assessment of EITI standards on deforestation. Using a sample of 83 resource-rich developing countries from 2001 to 2017, we use entropy balancing methods to address the self-selection bias associated with EITI membership. Compared with the non-EITI country, the results show that implementing the EITI standard significantly reduces the loss of forest cover by approximately 300–760 ha. Additionally, the magnitudes of the effects are larger and more significant if we include institutional indicators that are more important for EITI-compliant countries. This result supports the conclusion that EITI, but not a panacea, is an effective policy program for limiting the negative impacts on forests partly caused by extractive industries. This study provides clear guidance to both the EITI Board and the EITI National Committees, and more generally, to the governments of extractive resource-rich developing countries on the vital role of the EITI in combating forest cover loss and sustainable development finance.