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Beyond Rate of Return: Reorienting Project Appraisal


  • Devarajan, Shantayanan
  • Squire, Lyn
  • Suthiwart-Narueput, Sethaput


Traditional approaches to project appraisal fail in practice to address two fundamental questions: whether a project belongs in the public or the private sector; and what effect any external assistance associated with the project has on the country's development. The first issue is of general interest to both national policymakers and international donors. If the government provides a good or service that would otherwise have been provided by the private sector, the net contribution of the public project could be low. The second issue is of particular concern to donors. If financial resources are fungible, the project being appraised might well have been undertaken without external financing. In this case, donor funds are actually financing some other, unappraised project. Both cases argue for a shift in the emphasis of project evaluation away from a concern with precise rate-of-return calculations and toward broader sectoral analyses and public expenditure reviews. In this context, three areas critical for proper project appraisal include a consideration of the rationale for public intervention, the fiscal impact of the project, and the fungibility of external assistance.

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  • Devarajan, Shantayanan & Squire, Lyn & Suthiwart-Narueput, Sethaput, 1997. "Beyond Rate of Return: Reorienting Project Appraisal," World Bank Research Observer, World Bank Group, vol. 12(1), pages 35-46, February.
  • Handle: RePEc:oup:wbrobs:v:12:y:1997:i:1:p:35-46

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    References listed on IDEAS

    1. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, vol. 100(399), pages 188-194, March.
    2. Squire, Lyn, 1989. "Project evaluation in theory and practice," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 21, pages 1093-1137 Elsevier.
    3. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-138, March.
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    Cited by:

    1. Devarajan, Shantayanan & Rajkumar, Andrew Sunil & Swaroop, Vinaya, 1999. "What does aid to Africa finance?," Policy Research Working Paper Series 2092, The World Bank.
    2. Schreiner, Mark & Woller, Gary, 2003. "Microenterprise Development Programs in the United States and in the Developing World," World Development, Elsevier, vol. 31(9), pages 1567-1580, September.
    3. James E. Anderson & Will Martin, 2011. "Costs of Taxation and Benefits of Public Goods with Multiple Taxes and Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(2), pages 289-309, April.
    4. Mark Schreiner, 2001. "Evaluation and Microenterprise Programs," Development and Comp Systems 0108002, EconWPA, revised 27 Dec 2001.
    5. Venetoklis, Takis, 2002. "Public Policy Evaluation: Introduction to Quantitative Methodologies," Research Reports 90, VATT Institute for Economic Research.
    6. Will Martin & James E. Anderson, 2005. "Costs of Taxation and the Benefits of Public Goods: The Role of Income Effects," Boston College Working Papers in Economics 617, Boston College Department of Economics.
    7. Lant Pritchett & Salimah Samji & Jeffrey Hammer, 2012. "It’s All About MeE: Using Structured Experiential Learning (‘e’) to Crawl the Design Space," CID Working Papers 249, Center for International Development at Harvard University.
    8. Lyn Squire, 1998. "Professor Mirrlees' Contribution to Economic Policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(1), pages 83-91, February.
    9. Wiig, Arne & Kolstad, Ivar, 2005. "Lowering barriers to agricultural exports through technical assistance," Food Policy, Elsevier, vol. 30(2), pages 185-204, April.
    10. Anderson, James E. & Martin, Will, 1998. "Evaluating public expenditures when governments must rely on distortionary taxation," Policy Research Working Paper Series 1981, The World Bank.
    11. Mark Schreiner, 2001. "Microenterprise in the First and Third Worlds," Development and Comp Systems 0108001, EconWPA, revised 27 Dec 2001.
    12. Chiara DEL BO & Massimo FLORIO, 2008. "Infrastructure and growth in the European Union: an empirical analysis at the regional level in a spatial framework," Departmental Working Papers 2008-37, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    13. Mark Schreiner & Jacob Yaron, 2001. "Development Finance Institutions : Measuring Their Subsidy," World Bank Publications, The World Bank, number 13983.
    14. Alderman, Harold & Behrman, Jere R. & Glewwe, Paul, 2015. "A framework for physical growth and child development:," IFPRI discussion papers 1435, International Food Policy Research Institute (IFPRI).
    15. Suthiwart-Narueput, Sethaput, 1998. "The economic analysis of sector investment programs," Policy Research Working Paper Series 1973, The World Bank.
    16. Martin Ravallion, 2016. "The World Bank: Why It Is Still Needed and Why It Still Disappoints," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 77-94, Winter.
    17. Garza Escalante, Enrique F. & Paniagua Fernandez, L. Fernando, 2016. "Preparing transitions in public services: Payoff dimension, value estimation, schedule and budget computation," Socio-Economic Planning Sciences, Elsevier, vol. 55(C), pages 36-46.

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