Natural resources governance and tax revenue mobilization in sub saharan Africa: The role of EITI

Abstract

The resource curse literature suggests that windfall revenues from the exploitation of natural resources have a negative impact on non-resource tax revenues. Consequently, improving governance and transparency in the management of natural resource revenues is considered critical in mitigating the negative outcomes that typify resource-rich countries. This paper investigates whether EITI membership helps countries to offset the negative impact of natural resource dependence on tax revenues in a panel of 31 Sub Saharan African countries with significant natural resource endowments. Using panel fixed effects and dynamic panel GMM econometric methods, results confirm the existence of a negative relationship between revenues from natural resource sectors and tax revenues. Membership to the EITI has had a weak positive effect on non-oil revenue mobilization and only partially offsets the negative impact of natural resources dependence on non-resource tax revenues. These results suggest that while the EITI has had some positive contributions, it is not a panacea for eliminating the tax revenue curse in natural resource rich African countries.