1. Economic Analysis/ Appraisal
Krishna Khadka
Krishna Khadka

2. Objectives To assess the project’s worth to the economy
Efficient utilization of the resources
Growth of resources over time
Krishna Khadka

3. Need Major needs of the economic analysis are:
optimum allocation of resources
feasibility of the project
Minimize investment risk
Krishna Khadka

4. Economic Vs Financial Analysis
Costs and Benefits
CBA technique (although with varying degree)
with/without analysis
Krishna Khadka

5. Economic Vs Financial Analysis/ Appraisal
Objectives
Stakeholders
costs and benefits
Analysis
Prices
Payment
Krishna Khadka

6. Identification
Krishna Khadka

7. AUGMENTED series of CBA
costs and benefits
Direct
Indirect
AUGMENTED series of CBA
Krishna Khadka

8. Estimation of costs and benefits
- Multiplier
Linkages
Input output model
Leontief Inverse Matrix
Krishna Khadka

9. Valuation Estimation of prices
Definition of price - allocative efficiency
Market prices
The shadow price – other terms for shadow prices
Krishna Khadka

10. Distortion of market prices
Policies
Monopoly
Unions
Unemployed resources
Krishna Khadka

11. Prices Mathematical Programming, I/O Model,
Domestic Price Numeriar System,
World Price Numeriar System,
Direct price comparison method
DRC
And so on
Krishna Khadka

12. World Price Numeriar System
Most the project analysis use world price numeriar system for the estimation of shadow prices.
Analysis using world price numeriar indicates:
Whether its output could be obtained more cheaply from international sources
Krishna Khadka

13. WP and CF Conversion Factor (CF)
Economic price value = CF*financial price value
Traded goods
cif
fob
Non-traded goods
Krishna Khadka

14. TRADED GOODS
Krishna Khadka

15. Cont… Prices of traded inputs  Import prices if they are imported
 Export prices if it is exported
Prices of project outputs
 Export price if the project contributes to the export
 Import price if the project produces import substitutable products
Krishna Khadka

16. Cont… Border parity price of exported goods
While the border parity price of imported goods is
Krishna Khadka

17. Cont…
For the purpose of estimation of shadow price or Conversion Factor, traded inputs and outputs are further classified into:
imported only
exported only
both exported and imported
Krishna Khadka

18. Non-traded product
If a product is not traded between two countries, that is, if it does not cross the international boundary - it is known as non-traded
Krishna Khadka

19. Some products are taken as traded in one country but the same product is classified as non-traded in other country
Example: cement
Since the non-traded inputs are not exported and imported they should be managed within the country
Krishna Khadka