Glennerster, R., & Shin, Y. (2008). Does Transparency Pay?

Precept 2 states that successful natural resource management requires government accountability to an informed public. In turn, an informed public requires greater transparency in the natural resource sector. One major benefit is that development agencies, commercial lenders and credit agencies have an interest in transparency, leading to improved access to concessional and commercial finance for government. The paper provides evidence for this claim.

The paper by Glennerster and Shin begins with the premise that transparency can improve accountability and undermine special interests, and thereby lead to enhanced policies and institutions. This is examined through using data on an IMF transparency initiative whereby governments were given the option of making IMF reports publicly available. These reports contained detailed assessments of the country’s economic institutions, prospects and policies. The authors proceeded to test whether the release of these reports resulted in lower borrowing costs in sovereign bond markets (an indicator of the markets perception of economic conditions). The authors find that:

     - Countries which decided to publish the Article IV reports had their credit spread fall by 11percent on average.

     - There is a diminishing marginal benefit to transparency. This means, countries that are less transparent when transparency reforms are initiated have the most to gain from doing so.

     - Countries with smaller, less liquid, debt markets benefit particularly from increased transparency.

 The authors conclude by noting that whilst the paper focused upon a specific transparency initiative, the reforms are, in effect, merely government changing its disclosure policy. Thus, the results can possibly have wider applicability.