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

  • Massimo Florio

    ()

  • Silvia Vignetti

    ()

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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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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  1. Alberto Chong & César Calderón, 2001. "Volume and Quality of Infrastructure and the Distribution of Income: An Empirical Investigation," Research Department Publications 4263, Inter-American Development Bank, Research Department.
  2. Massimo Florio, 1997. "The economic rate of return of infrastructures and regional policy in the European Union," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 68(1), pages 39-64, 03.
  3. Frank Barry & John Bradley & Aoife Hannan, 2001. "The Single Market, the Structural Funds and Ireland's Recent Economic Growth," Journal of Common Market Studies, Wiley Blackwell, vol. 39(3), pages 537-552, 09.
  4. Massimo Florio, 1999. "An International Comparison of the Financial and Economic Rate of Return of Development Projects," Departmental Working Papers 1999-06, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  5. Pereira, Alfredo M, 1997. "Development Policies in the EU: An International Comparison," Review of Development Economics, Wiley Blackwell, vol. 1(2), pages 219-35, June.
  6. Calderon, Cesar & Serven, Luis, 2004. "The effects of infrastructure development on growth and income distribution," Policy Research Working Paper Series 3400, The World Bank.
  7. de la Fuente, Angel, 2002. "On the sources of convergence: A close look at the Spanish regions," European Economic Review, Elsevier, vol. 46(3), pages 569-599, March.
  8. Massimo FLORIO & Silvia VIGNETTI, 2004. "Cost benefit analysis, developing planning and the EU cohesion fund: learning from experience," Departmental Working Papers 2004-31, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  9. 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.
  10. Jacky Fayolle & Jacques Le Cacheux, 1998. "Elargissement, PAC, politiques structurelles et ' juste retour ' : la quadrature du cercle budgétaire européen," Sciences Po publications info:hdl:2441/2095, Sciences Po.
  11. Boldrin, Michele & Canova, Fabio, 2003. "Regional Policies and EU Enlargement," CEPR Discussion Papers 3744, C.E.P.R. Discussion Papers.
  12. John Bradley, 2006. "Evaluating the impact of European Union Cohesion policy in less-developed countries and regions," Regional Studies, Taylor & Francis Journals, vol. 40(2), pages 189-200.
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