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

Glnar Eskandar

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

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.

Keywords: economic diversification; composite index; endogenous weights; entropy; penalty term; resource dependence (search for similar items in EconPapers)
JEL-codes: C43 O57 Q32 (search for similar items in EconPapers)
Date: 2025
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