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

  • Halicioglu, Ferda
  • Karatas, Cevat

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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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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  1. David J. Evans & Haluk Sezer, 2005. "Social discount rates for member countries of the European Union," Journal of Economic Studies, Emerald Group Publishing, vol. 32(1), pages 47-59, January.
  2. repec:uwo:epuwoc:20082 is not listed on IDEAS
  3. John Creedy & Ross Guest, 2008. "Discounting and the Time Preference Rate," The Economic Record, The Economic Society of Australia, vol. 84(264), pages 109-127, 03.
  4. Marco Percoco, 2007. "A social discount rate for Italy," Applied Economics Letters, Taylor & Francis Journals, vol. 15(1), pages 73-77.
  5. David J. Evans, 2005. "The elasticity of marginal utility of consumption: estimates for 20 OECD countries," Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 197-224, June.
  6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  7. Markandya, Anil & Pearce, David W, 1991. "Development, the Environment, and the Social Rate of Discount," World Bank Research Observer, World Bank Group, vol. 6(2), pages 137-52, July.
  8. Samih Antoine Azar, 2007. "Measuring the US social discount rate," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(1), pages 63-66, January.
  9. Erhun Kula, 2004. "Estimation of a Social Rate of Interest for India," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(1), pages 91-99.
  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., vol. 16(3), pages 289-326.
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