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Weighted Composite Diversification Index: A New Measure of Economic Diversification in Resource-Dependent Economies

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  • Eskandar, Glnar

Abstract

This note introduces a Weighted Composite Diversification Index (WCDI) for resource-dependent economies that integrates fiscal, trade, and output diversification into a single measure, weighted by their relative economic size. Unlike existing indices, the WCDI endogenizes weights according to the macroeconomic structure: fiscal diversification is weighted by government size, trade diversification by export dependence, and output diversification by domestic demand as a share of GDP. To reflect the vulnerabilities of resource-dependent economies, the WCDI incorporates a penalty term that penalizes resource shares within each subindex, providing a context-sensitive gauge of diversification.

Suggested Citation

  • Eskandar, Glnar, 2025. "Weighted Composite Diversification Index: A New Measure of Economic Diversification in Resource-Dependent Economies," EconStor Preprints 325853, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:325853
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    References listed on IDEAS

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    1. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    2. Addisu A Lashitew & Michael L Ross & Eric Werker, 2021. "What Drives Successful Economic Diversification in Resource-Rich Countries? [“Blocking the Pathway out of the Resource Curse: What Hinders Diversification in Resource-rich Developing Countries?”]," The World Bank Research Observer, World Bank, vol. 36(2), pages 164-196.
    3. Rasmané Ouedraogo & René Tapsoba & Mousse Ndoye Sow & Ali Compaoré, 2020. "Fiscal Resilience Building: Insights from a New Tax Revenue Diversification Index," Working Papers hal-03182358, HAL.
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    Keywords

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    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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