October 26, 2006

Strengthening Economic Freedom: Natural Resource Indicators and Economic Growth

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In this policy comment submitted to the Millennium Challenge Corporation (MCC), the Mercatus Center reflects on the first three years of the MCC and evaluates the potential of two proposed "natural resource indicators" as criteria for awarding aid grants to developing countries. The MCC was created in 2003 by policy makers who saw potential to go beyond the failed programs that had characterized sixty years of American international assistance.

The intent of President Bush and the MCC’s framers in Congress in creating the MCC was to make aid conditional solely on pro-growth institutional changes and policies that supported poverty reduction through economic growth. Thus far, the MCC has identified 16 indicators across the three categories outlined in section 607 of the Millennium Challenge Act of 2003 which it uses to make award decisions. In 2005 the MCC indicated a desire to expand the number of indicators to include measures of "natural resource management."

This choice represents a critical decision point—one that will have consequences for the long-term viability and direction of the MCC. One proposed indicator, the Natural Resources Management Index (NRMI), is out of place given the MCC's legislative mandate and threatens to derail its focus on economic growth. The alternative Land Rights and Access Index would provide a much better indicator of effective natural resources management as it relates to economic freedom and encouraging economic growth as mandated by the MCC's mission.