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Estimation of economic discounting rate for practical project appraisal: the case of Turkey

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  • Halicioglu, Ferda
  • Karatas, Cevat

Abstract

This study focuses on estimating an economic discounting rate (EDR) to be used in project appraisals by the State Planning Organisation (SPO) of Turkey. The EDR is a policy tool used for selecting the best projects to meet the economic targets of development plans and to enable planners to choose the most profitable and feasible projects. Since the resources available to the economy are scarce, planners are expected to use cost-benefit analysis (CBA) especially, Net Present Value (NPV) criteria. The NPV is considered to be more reliable than the internal rate of return. Therefore, selection of an appropriate social discount rate is a key issue in the application of CBA for project appraisal. In this article, an attempt is made to estimate the EDR of Turkey via a “growth models” approach, providing fresh evidence for enhancing the project appraisal system in Turkey. The results reveal that the EDR of Turkey is 12.94% in the estimation period of 1985-2009.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29577.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:29577

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Related research

Keywords: Project Appraisal; Growth Model; ARDL; Turkey;

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References

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  1. John Creedy & Ross Guest, 2008. "Discounting and the Time Preference Rate," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 84(264), pages 109-127, 03.
  2. Samih Antoine Azar, 2007. "Measuring the US social discount rate," Applied Financial Economics Letters, Taylor and Francis Journals, Taylor and Francis Journals, vol. 3(1), pages 63-66, January.
  3. Marco Percoco, 2007. "A social discount rate for Italy," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(1), pages 73-77.
  4. David J. Evans & Haluk Sezer, 2005. "Social discount rates for member countries of the European Union," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 32(1), pages 47-59, January.
  5. Erhun Kula, 2004. "Estimation of a Social Rate of Interest for India," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 55(1), pages 91-99.
  6. David J. Evans, 2005. "The elasticity of marginal utility of consumption: estimates for 20 OECD countries," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 197-224, June.
  7. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  8. David Burgess, 2008. "Removing Some Dissonance From the Social Discount Rate Debate," University of Western Ontario, Economic Policy Research Institute Working Papers, University of Western Ontario, Economic Policy Research Institute 20082, University of Western Ontario, Economic Policy Research Institute.
  9. Markandya, Anil & Pearce, David W, 1991. "Development, the Environment, and the Social Rate of Discount," World Bank Research Observer, World Bank Group, World Bank Group, vol. 6(2), pages 137-52, July.
  10. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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Cited by:
  1. Chavez, Holcer & Nadolnyak, Denis A. & Saravia, Miguel, 2013. "Socioeconomic and Environmental Impact of Development Interventions: Rice Production at the Gallito Ciego Reservoir in Peru," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), International Food and Agribusiness Management Association (IAMA), vol. 16(1).

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