The multidimensional indicator of extractives-based development (MINDEX): a new approach to measuring resource wealth and dependence

Despite the vast amount of academic work estimating the impact of natural resources on development, very little attention has been devoted to the implications of using one type of natural resource measurement over another. This study fills this important gap in two ways. Firstly, it puts forward the biases and statistical misconceptions associated with different measurements of resource wealth, which have often led to the wrong classification of resource-poor countries as resource-rich and vice versa. As a result of the limitations of existing measurements, the discourse around extractives-based development has tended to lump various countries together, considering them all to be ‘resource-rich’, which is misleading. Instead, this paper shows that resource wealth and dependence are multifaceted. Secondly, in contrast to the conventional measurements that have relied on different indicators of resource wealth in isolation from one another, this study sheds light on the need for a multidimensional approach to measuring resource endowment. I propose a new indicator, the MINDEX, which weights six different variables of both resource abundance and dependence across several dimensions (extractives reserves, production, exports, and government revenues) that relate to the different steps of resource exploitation chain to harness natural resources for development. Because of its methodology, the MINDEX can also serve as a diagnostic tool that contributes to identifying some of the extractives-related policy challenges that a given country may face at a given time (such as illegal commodity smuggling, poor appropriation/taxation of commodity revenues, limited production capacity of existing deposits, vulnerability to commodity price fluctuations, and acute commodity dependence). It therefore also responds to the need for a new measure of extractives-based development to indicate whether a country is moving in the right or wrong direction over time and has clear relevance for informing resource mobilization dynamics and development strategies.