Current Issues in Project Analysis for Development

Current Issues in Project Analysis for Development

Elgar original reference

Edited by John Weiss and David Potts

This major work brings together authors with experience of both academic and operational project work to focus on issues such as the shadow exchange rate, the shadow wage, the discount rate and assessment of poverty impact and risk, as well as problems relating to specific sectors covering environmental projects, transport, education and health. There are also general chapters on the experience of semi-input–output-based estimation of shadow prices and the relevance of shadow pricing techniques to the context of developed economies in the EU. An overview by the editors sets out the evolution of the literature and highlights current issues. The general conclusion is that project analysis techniques remain relevant, albeit within a very different development context to that in which they were originally envisaged to be applied.

Chapter 4: Semi-Input–Output Methods of Shadow Price Estimation: Are They Still Useful?

David Potts

Subjects: development studies, development economics, economics and finance, development economics


David Potts INTRODUCTION Semi-input–output (SIO) analysis has been used extensively in the estimation of shadow prices, particularly in the 1990s. It has the advantage of providing a comprehensive and internally consistent model of the economy and can provide the framework for more detailed work on individual items. However, like all techniques it rests on assumptions and is subject to their limitations. A particular problem associated with the use of any form of prices in cost–benefit analysis is that assumptions are made about an uncertain future. Given the rapid changes associated with globalisation, as well as the impact of liberalisation in reducing the difference between economic and market price values, we might ask whether the method is still useful. This chapter sets out to answer the question by investigating first the origins, main features, assumptions and limitations of the method, then by reviewing the practices used in studies in a number of countries. The potential ways in which the estimates produced by the method can be used are then discussed before considering its usefulness in present day circumstances. ORIGINS AND MAIN FEATURES OF THE METHOD The SIO method can be traced to the work of Tinbergen and Bos (1962: 82–3). The most important feature is the distinction between what were originally described as ‘national’ and ‘international’ sectors and what are now described as traded and non-traded sectors. In a conventional input– output table all of the intersectoral linkages are traced but, since traded goods can be either imported...

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