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Cost-benefit Analysis of Infrastructure Projects in an Enlarged European Union: Returns and Incentives

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Author Info
Massimo Florio ()
Silvia Vignetti ()

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Abstract

We consider results of cost-benefit analysis (CBA) in a large sample of ISPA (Structural Instrument for Pre-Accession countries) projects co-financed by the European Union to support investment in transport and environment. The research focus is on the empirical analysis of the variability of financial and economic rates of return and how to integrate this information in the EU co-financing mechanism. We investigate to what extent the variability of expected returns and of EU co-financing rates is due to structural project characteristics (sectors, countries) or to other unexplained factors, including errors in the appraisal. We find that while the absolute level of grants is related to sectors, the EU co-financing rate depends on countries. There is no justification in economic analysis of such a country bias, because the variability of economic rate of returns is unrelated either to sector or country factors. These findings points to the need of a more consistent approach to evaluation and EU co-financing of infrastructure supported by the EU funds. We suggest possible improvements, based on the idea to offer an incentive to projects with high-expected economic␣rates of return relative to a benchmark and showing ex-post the realism of the initial analysis. Copyright Springer Science+Business Media, LLC 2005

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File URL: http://hdl.handle.net/10.1007/s10644-006-9002-0
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Publisher Info
Article provided by Springer in its journal Economic Change and Restructuring.

Volume (Year): 38 (2005)
Issue (Month): 3 (December)
Pages: 179-210
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Handle: RePEc:kap:ecopln:v:38:y:2005:i:3:p:179-210

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Web page: http://www.springerlink.com/link.asp?id=113294

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Related research
Keywords: cost-benefit analysis; EU Structural Funds; infrastructure; project evaluation; D61; H43; R58;

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  1. César Calderón & Alberto Chong, 2004. "Volume and Quality of Infrastructure and the Distribution of Income: An Empirical Investigation," Review of Income and Wealth, Blackwell Publishing, vol. 50(1), pages 87-106, 03. [Downloadable!] (restricted)
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  2. Gillian Bristow & Nigel Blewitt, 2001. "The Structural Funds and additionality in Wales: devolution and multilevel governance," Environment and Planning A, Pion Ltd, London, vol. 33(6), pages 1083-1099, June. [Downloadable!] (restricted)
  3. Pereira, Alfredo M, 1997. "Development Policies in the EU: An International Comparison," Review of Development Economics, Blackwell Publishing, vol. 1(2), pages 219-35, June. [Downloadable!] (restricted)
  4. de la Fuente, Angel, 1996. "On the Sources of Convergence: A Close Look at the Spanish Regions," CEPR Discussion Papers 1543, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Frank Barry & John Bradley & Aoife Hannan, 2001. "The Single Market, the Structural Funds and Ireland's Recent Economic Growth," Journal of Common Market Studies, Blackwell Publishing, vol. 39(3), pages 537-552, 09. [Downloadable!] (restricted)
  6. Boldrin, Michele & Canova, Fabio, 2003. "Regional Policies and EU Enlargement," CEPR Discussion Papers 3744, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. César Calderón & Luis Servén, 2004. "The Effects of Infrastructure Development on Growth and Income Distribution," Working Papers Central Bank of Chile 270, Central Bank of Chile. [Downloadable!]
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  8. Massimo Florio, 1999. "An International Com parison of the Financial and Economic Rate of Return of Development Projects," Departemental Working Papers 1999-06, Department of Economics University of Milan Italy. [Downloadable!]
  9. John Bradley, 2006. "Evaluating the impact of European Union Cohesion policy in less-developed countries and regions," Regional Studies, Taylor and Francis Journals, vol. 40(2), pages 189-200, April. [Downloadable!] (restricted)
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