Economic Analysis of Subregional Projects

Abstract

Large multicountry infrastructure projects are increasingly promoted as subregional projects whereby governments, public and private investors and financiers of various countries, and regional and international development agencies take part. For decisions on such projects, in addition to a reasonable return on investment, the issue of the equitable distribution of project costs and benefits among all the participants and beneficiaries is important. Governments involved in promoting such projects try to maximize economic benefits in relation to the costs incurred. Private investors try to maximize their profits on their investment. External funding sources and international development agencies like to see each project participant’s interests protected. The literature indicates that methodologies and practice of project economic analysis, namely cost-benefit analysis, tends to focus on analyzing allocative efficiency and to a certain extent income distribution effects of national projects. The methodologies are largely silent about cost-benefit analysis in a multicountry framework. They also insufficiently address the issue relating to project risks and sensitivity such as foreign exchange depreciation and changes in relative prices of goods and primary factor inputs. This paper discusses related issues in project economic analysis in a multicountry framework. It presents a methodological framework for analyzing economic costs and benefits of multicountry or subregional projects at national as well as subregional levels. It also provides some illustrations of its application.