Unveiling the nexus: Impact of the Extractive Industries Transparency Initiative (EITI) on foreign direct investment (FDI)

The Extractive Industries Transparency Initiative was originally conceived by Tony Blair in 2002 to improve the transparency and accountability of extractive industries in resource-rich economies. It is theorized that added transparency will create an environment welcoming foreign direct investment (FDI). To investigate this claim, this paper studies the impact of EITI on FDI using a panel dataset of 62 countries over 30 years. The results show that EITI membership significantly increases FDI by roughly 50% depending on the specification. Further, when examining interaction and threshold effects, the paper finds asymmetric impacts during global economic downturns: while countries that leave EITI experience significant reductions in FDI, even the mere intention to join EITI is associated with significant increases in FDI. These findings demonstrate that EITI membership serves as an effective policy mechanism for attracting foreign investment in resource-rich developing economies. • The EITI should improve transparency and accountability thus leading to increased FDI. • Hypothesis is tested empirically using 62 resource rich developing countries over 30 years. • Considered is the full EITI accession chain including EITI statuses. • EITI membership leads to a roughly 50% increase in FDI inflows depending on the specification. • Benefits start once a country becomes the EITI member.