Economic Rate Of Return Research Articles

The Forgotten Rationale for Policy Reform: The Productivity of Investment Projects

Using economic rates of return from more than 1,200 public and private sector projects implemented in 61 developing countries, the authors analyze determinants of investment productivity. Results from Tobit estimation demonstrate that the degree of countrywide policy distortions - macroeconomic, exchange rate, trade and pricing - critically affects the productivity of investments. Countries with undistorted policies are likely to be unproductive investments. In countries with distorted policies, investments are likely to be unproductive. And within a country, investments become more productive when economic policymaking improves. The productivity of projects in the tradable sectors are also affected (in a nonlinear fashion) by the size of a country's public investment program. The authors discuss possible selection biases in this data set, present tests of robustness, and highlight policy implications. In particular, donor financing for improvements in the policy climate is likely to pay off. A powerful rationale for supporting structual reform is that it raises the productivity of both public and private investments.

An International Comparison of the Financial and Economic Rate of Return of Development Projects

In this paper we analyse data on the rates of return of investment projects sponsored by three international institutions: the European Union, the European Bank for Reconstruction and Development, the World Bank. The focus of the paper is on the variability of ex-ante economic rates of return (ERR), of financial rates of return (FRR, available for EU and EBRD) and ex-post or re-estimated economic rates of return (RERR, available for WB only). We propose a framework of analysis of FRR and ERR variations across projects, sectors, financing institutions, of the wedge between ERR and FRR, and of the gap between ERR and RERR. In principle the same framework couldbe used for comparing rates of return variability of development projects across countries, time of approval or completion, or any other rele vant sampling criterion.

The Southern Cone Initiative against Chagas Disease

Chagas disease (also known as American trypanosomiasis) is now ranked as the most serious parasitic disease of the Americas, with an economic impact far outranking the combined effects of other parasitic diseases such as malaria, schistosomiasis and leishmaniasis. Although the chronic infection remains virtually incurable, transmission can be halted by eliminating the domestic insect vectors and screening blood donors to avoid transfusional transmission. In line with this strategy, governments of the six Southern Cone countries (Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay) launched in 1991 an ambitious initiative to control Chagas disease through elimination of the main vector, Triatoma infestans, and large-scale screening of blood donors. Now at its mid-point, the programme has achieved remarkable success, with transmission halted over vast areas of the previously endemic regions. Well over 2 million rural houses have been sprayed to eliminate T. infestans, and the programme has already shown significant economic rates of return in addition to the medical and social benefits.

The Cult of Efficiency in Education: Comparative reflections on the reality and the rhetoric

ABSTRACT What is argued in this article is that the rising tide of 'efficiency' in contemporary education often masks a reduction in both the quality of education provided and attempts to reduce levels of resources invested in education, particularly in the public sector. Historical and comparative examples of reform movements in education in the US, UK and Australia, the methodology of comparative education and the ongoing reforms in higher education in both the UK and Australia reveal that arguments about efficiency, not least in the current era of worldwide economic stringency, often consist of little more than arguments about economics or economism. In particular, efficiency movements can be argued to be predicated upon the idea that both individual worth and the worth of education can be reduced to economic terms. Equally, individuals and societies are also seen as rational, in so far as they invest in education only to the extent that education delivers a better economic rate of return than other forms of investment.

Economic impact of onchocerciasis control through the African Programme for Onchocerciasis Control: an overview.

This note overviews several studies that have been conducted on the economic impact of onchocerciasis (river blindness) control through the African Programme for Onchocerciasis Control (APOC). A cost-benefit analysis of the APOC concludes that the programme is highly cost-effective. The economic rate of return (ERR) is 17% if benefits are considered in accordance with the stated objective of the programme (i.e. the achievement of long-term, sustainable, ivermectin-delivery systems). However, the cost-benefit analysis significantly under-estimates the net benefits from the APOC, since it considers, for ease of quantification, only the reduction in blindness as the principal benefit accruing from control activities. Recent studies, summarized here, have shown that there may be substantial benefits (in terms of enhanced productivity, increased household-level welfare, and reduced health-related expenditure, for instance) resulting from the reduction of the skin-related symptoms associated with the disease.

Economic impact of onchocerciasis control through the African Programme for Onchocerciasis Control: an overview

This note overviews several studies that have been conducted on the economic impact of onchocerciasis (river blindness) control through the African Programme for Onchocerciasis Control (APOC). A cost-benefit analysis of the APOC concludes that the programme is highly cost-effective. The economic rate of return (ERR) is 17% if benefits are considered in accordance with the stated objective of the programme (i.e. the achievement of long-term, sustainable, ivermectin-delivery systems). However, the cost-benefit analysis significantly under-estimates the net benefits from the APOC, since it considers, for ease of quantification, only the reduction in blindness as the principal benefit accruing from control activities. Recent studies, summarized here, have shown that there may be substantial benefits (in terms of enhanced productivity, increased household-level welfare, and reduced health-related expenditure, for instance) resulting from the reduction of the skin-related symptoms associated with the disease.

Wildlife utilization and biodiversity conservation in Namibia: conflicting or complementaryobjectives?

This paper surveys different economic aspects of biodiversity conservation in Namibia's wildlife sector. One of the main causes of biodiversity loss has been the conversion of wildlife habitat to other land uses, notably livestock and crops. However, wildlife utilization strategies potentially yield significantly higher economic rates of return compared to these traditional land uses. Historically, the move towards land use patterns more favourable to wildlife has been hampered by a number of policy and institutional constraints. Since Namibia's independence, many of these constraints have now been removed or are in the process of reform. These moves are already encouraging investment in wildlife utilization, most notably in wildlife tourism and related activities. Some forms of wildlife utilization, particularly ecotourism and photographic safaris, will certainly complement the national and international commitment to biodiversity conservation. Consumptive uses may be economically attractive in some areas and will discourage further habitat conversion. However, uses which involve specialized management for the production of a few species may alter the species composition and functioning of ecosystems, causing conflict between the aims of wildlife utilization and biodiversity conservation. Less tangible components of biodiversity may remain under threat even under a well-designed wildlife utilization policy.

Financial, economic and environmental profitability of reforestation of Imperata grasslands in Indonesia

The reforestation of Imperata grasslands is considered financially, economically and environmentally important. The successful establishment of a forest plantation on Imperata grassland needs heavy investment at the outset. It was estimated that the minimum establishment costs are US$840/ha. The total pulpwood production costs at the mill gate were calculated to be US$21/m 3 by water transport and to US$27/m 3 by road transport. During the first rotation, roundwood production in fast-growing plantations resulted in a real rate of return of 3.3% on the investment with the present pulpwood price of US$20/m 3 and a mean annual increment (MAI) of 25 m 3/ha. The relatively low financial profitability is mainly due to the country's undeveloped pulpwood markets. The IRR rose to 18% when the present roadside price was applied as a stumpage price. The support by the Indonesian government's industrial timber estates (HTI) scheme raised the IRR to 7%. Financial profitability was sensitive to the roundwood price and harvesting costs. The reforestation of Imperata grassland was more profitable economically than financially, resulting in an economic rate of return (ERR) of 21%. When the environmental economic impacts are taken into account the reforestation can be considered very profitable, raising the value of an area from US$1000 to 2500/ha. In this study, the following conclusions can be drawn: (1) a high MAI can only be reached with intensive establishment and management; (2) roundwood price should be allowed to fluctuate according to demand and supply; (3) reliable estimation of the harvesting costs before starting a project is recommended; (4) an adequate prefeasibility study of a forest plantation should be a prerequisite for the investor before the government's financing or other incentives are offered; (5) the government's support should be provided according to the real costs; and (6) application of incentives is justified in economically, socially or environmentally profitable projects but not in financially profitable projects.

Determinants of organizational performance

A holistic, integrative and synergistic performance model is defined by inter‐firm variables represented as economic rates of return for both economic and organizational factors. These variables are used to examine performance variance and their economic contribution to firm profitability. An extensive literature review has been conducted to discover the commonality of underlying constructs and themes within the research stream on organizational performance. An analysis of the data suggests that there exists a set of common variables to explain organizational performance variance. Builds on the results of an earlier study that indicates organizational factors explain almost twice as much variance in profit rates as do economic factors. Proposes a systemic framework on which to partition the economic contribution of these interdependent determinant factors of organizational performance.

Export Processing Zones in Sri Lanka: A Cost-Benefit Appraisal

Like many countries, Sri Lanka has used Export Processing Zones as a means of promoting manufactured exports. This article uses a cost-benefit approach to estimate the returns to the national economy from the main zones. Overall, the zones are found to be economically efficient with an economic rate of return of 23 per cent. The zones are dominated by textile and clothing firms, however, and returns in other sectors are considerably lower. Unlike zones elsewhere, profits to local investors are a significant part of national benefits. © 1997 John Wiley & Sons, Ltd.

Civil Liberties, Democracy, and the Performance of Government Projects

This article uses a cross-national data set on the performance of government investment projects financed by the World Bank to examine the link between government efficacy and governance. It demonstrates a strong empirical link between civil liberties and the performance of government projects. Even after controlling for other determinants of performance, countries with the strongest civil liberties have projects with an economic rate of return 8 - 22 percentage points higher than countries with the weakest civil liberties. The strong effect of civil liberties holds true even when controlling for the level of democracy. The interrelationship among civil liberties, civil strife, and project performance suggests that the possible mechanism of causation is from more civil liberties to increased citizen voice to better projects. This result adds to the evidence for the view that increasing citizen voice and public accountability through both participation and better governance can lead to greater efficacy in government action

The Theory of Transnational Firms: an empirical reassessment

Theories of the transnational firm that stress the profit advantages of international operations in high-technology industries with high entry barriers are not supported for a sample of US-based transnational and domestic firms from Standard & Poor's Compustat database. Replacing the accounting-based profit rate with a measure of economic rate of return, designed to better assess enterprise performance, yields no significant difference in returns to transnational and domestic firms in high-technology manufacturing. Transnational firms do experience profit advantages over domestic firms in the less innovative industries, but this pattern does not fit the theories stressing advantages accuring from intangible assets, entry barriers, and technological accumulation.

The economic rate of return of infrastructures and regional policy in the European Union

This paper examines the results of cost–benefit analysis (CBA) of 200 major investment projects co‐financed in 1988–93 by the European Commission. The project database we have built is probably one of the few existing sets of comparable micro‐data on the expected rates of return of public infrastructure and on the quality of CBA leading to its calculation. The database reveals a striking dispersion of expected rates of return around the average. Part of the large sample variance is probably a consequence more of inconsistencies in the actual implementation of CBA than of structural differences among the European Union’s more economically backward regions. We offer a measurement of the quality of CBA and compare EU ex‐ante data with World Bank ex‐post data.

Industrialization and the State: The Korean Heavy and Chemical Industry Drive (review)

BOOK REVIEWS157 resented as news, but neither can they afford to disbelieve all, even manifest propaganda. Simons might well argue that some recent developments in South Korea provide further evidence of continuities with the "culture of its brutal past": the ongoing corruption scandals, the hard line taken toward student demonstrators sympathetic to the North, and upgraded security provisions in the wake of the submarine incursion from the North. The claim, though hard to refute, says nothing for claims to legitimacy made by the North, which can suppress a good deal more of the evidence regarding its version of this culture. In brief, this book offers little that is new besides an attitude of discontent with the received opinions of the pro-Western, pro-ROK variety. It is largely taken up with a historical overview covering traditional Korea, the Japanese period, the Korean War and so on, readable but dependent on widely available sources. The account of the 1994 crisis is clearly written and argued, but admirably skeptical accounts of the Clinton administration's handling of the crisis are not in fact all that hard to find. The ideal reader is probably the upper-level or graduate student who will benefit from a stubbornly independent perspective, but equipped with enough background to sort wheat from chaff. The inclusion of key texts like the Treaty on the Nonproliferation of Nuclear Weapons among its six appendices makes the volume a viable acquisition for research libraries. David Kelly University of New South Wales [Australian Defence Force Academy] Industrialization and the State: The Korean Heavy and Chemical Industry Drive, by Joseph J. Stern, Ji-hong Kim, Dwight H. Perkins, and Jung-ho Yoo. Cambridge, Mass.: Harvard Institute for International Development, 1995. 206 pp. $30.00. The book under review is a product of a project jointly carried out by the Korea Development Institute and the Harvard Institute for International Development to evaluate the Korean heavy and chemical industry (HCI) drive that was officially launched by President Park Chung Hee in 1973. It has a chapter on the history of the HCI program and a chapter on how it was implemented, and these two together provide succinct information on how the program was conceived and carried out. It also has a chapter on selected case histories, both failures and successes. The core of the book consists of two chapters, one taking a macroeconomic approach to analyzing the results of the HCI program and the other 158KOREAN STUDIES, VOL. 21 taking a project-specific approach. The latter evaluates three "unsuccessful" projects and three "successful" projects. The main thrust of the macroeconomic approach is based on the calculation of capital efficiency—the rate of return on capital employed in individual industries. This calculation is designed to test the hypothesis that the HCI program led to resource misallocation: given the assumption of diminishing returns to the factors of production, if capital efficiency was lower in the promoted HC group than in the nonpromoted group of light manufacturing industries (Light group), this would imply an overinvestment of capital in the former. The results of their estimation using three different methods for calculating capital efficiency show that capital efficiency was indeed higher in the Light group than the HC group, although the difference was less than 6 percentage points and disappeared by the early 1980s. A fundamental problem with this approach is that the estimation of an industry's capital efficiency is based only on that industry's internally added value, excluding any possible externality and linkage effects on other industries . Obviously, it is almost impossible to take all these effects into account in estimating capital efficiency, and I do not mention this point to disparage the many hours the authors must have spent to estimate capital efficiency. It is rather to point out how difficult it is to draw any firm conclusion about the effect of the HCI program on economic development on the basis of the evidence presented in this book. The chapter on selected projects reaches what appears to be an odd conclusion . On the basis of their evidence that the projects they studied all had at least marginally acceptable economic rates of return, the authors conclude that...

Estimates of economic rates of return for the U.S. pharmaceutical industry, 1976–1987

Estimation procedures are designed to consider features of publicly-available financial accounting information which allegedly compromise its use to estimate economic internal rates of return. These procedures, which focus on cashflows rather than conventional accounting income measures, are used to investigate the relative profitability of the U.S. pharamaceutical industry. Results indicate that pharmceutical returns exceed returns for comparable U.S. industrial firms during the period encompassed by the study. Differences for these comparisons are substantially less than what is implied by an uniformed use of accounting information, however. In particular, differences in implied internal rates of return of 2.1% to 3.8%, whereas differences in accounting rates of return are 4.0% to 5.6%. Results are robust for a wide variety of assumptions about industry growth rates and investment payout profiles, characteristics which potentially cause accounting-based return measures to differ from underlying internal rates of return.

Accounting and economic rates of return: Additional Australian evidence

The key issue addressed in my paper is whether accounting rate of return (ARR) performs as an effective monitoring surrogate for internal rate of return (IRR). Financial information derived from a sample of 44 Australian corporations between 1968 and 1990 was utilized to accomplish this objective. The Kelly-Tippett (1991) technique was employed to analyze the data set. Results confirm earlier work in the area in that the ARR was found to be an unreliable substitute for the IRR.

Sustainable Asset Growth and the Accounting Rate of Return in Not–For–Profit Organizations: Theory and Evidence

Parties needing to monitor the financial performance of not–for–profit (NFP) organizations have traditionally relied upon financial ratios of accounting data. This practice can lead to misleading inferences about profitability in relation to organizational needs, since accounting rates of return are potentially poor proxies for economic rates of return. In this paper we show how to compensate for the imprecision of the accounting rate of return through the use of a simple interpretive rule based on the finding that accounting and economic rates of return are on the same side of the growth rate. According to our rule, the accounting rate of return must exceed the asset growth rate in order to sustain growth with internally–generated cash flow. Logistic regressions are used to test the rule's ability to predict sustainable asset growth in a sample of NFP hospitals. The findings not only validate the rule, but also show that the rule exploits all usable information contained in the accounting rate of return

Returns from research in economies with policy distortions: hybrid sorghum in Sudan

Conventional estimates of the economic return to agricultural research use market prices for the values of products and inputs; on this basis, economic rates of return are typically well above the cost of capital, suggesting that more investment in research would be socially desirable. But these estimates may be incorrect if, as is often the case, market prices are distorted by market failures or government policies and hence do not reflect social values. This paper presents a simple, partial-equilibrium methodology with which to improve the measurement of social returns to research by taking account of multiple distortions in the market prices of products, inputs and foreign exchange. The method also takes account of variation in domestic and world prices, making a product tradable in some years and nontradable in others. The method is applied to the case of Hageen-Dura 1 (HD-1), Sub-Saharan Africa's first commercially successful hybrid sorghum. HD-1 was released in the Sudan in 1983. From the start of research in 1979 to 1992, the HD-1 breeding program had an estimated IRR of 97% when all major policies in the sorghum market, the fertilizer market, and the exchange rate are taken into account. The high rate of return to HD-1 research was due to the program's low cost and rapid payoff, pointing to the potential value of small adaptive research programs, taking full advantage of foreign technology and genetic material to produce locally-appropriate crosses in a short period of time. Even in the highly distorted economies of Africa, such programs can yield very high payoffs.

Returns from research in economies with policy distortions: hybrid sorghum in Sudan

AbstractConventional estimates of the economic return to agricultural research use market prices for the values of products and inputs; on this basis, economic rates of return are typically well above the cost of capital, suggesting that more investment in research would be socially desirable. But these estimates may be incorrect if, as is often the case, market prices are distorted by market failures or government policies and hence do not reflect social values.This paper presents a simple, partial‐equilibrium methodology with which to improve the measurement of social returns to research by taking account of multiple distortions in the market prices of products, inputs and foreign exchange. The method also takes account of variation in domestic and world prices, making a product tradable in some years and nontradable in others. The method is applied to the case of Hageen‐Dura 1 (HD‐1), Sub‐Saharan Africa's first commercially successful hybrid sorghum.HD‐1 was released in the Sudan in 1983. From the start of research in 1979 to 1992, the HD‐1 breeding program had an estimated IRR of 97% when all major policies in the sorghum market, the fertilizer market, and the exchange rate are taken into account. The high rate of return to HD‐1 research was due to the program's low cost and rapid payoff, pointing to the potential value of small adaptive research programs, taking full advantage of foreign technology and genetic material to produce locally‐appropriate crosses in a short period of time. Even in the highly distorted economies of Africa, such programs can yield very high payoffs.

Effects of Intercropping Young Plants of the Compact Arabica Coffee Hybrid Cultivar Ruiru 11 with Potatoes, Tomatoes, Beans and Maize on Coffee Yields and Economic Returns in Kenya

SUMMARYThe effects of intercropping young plants of the compact arabica coffee hybrid cultivar Ruiru 11 with potatoes, tomatoes, maize and Phaseolus (dry) beans were studied between 1987 and 1989 at Ruiru in Kenya. Yields of clean (hulled) coffee were reduced by the maize intercrop by 59–100%. Coffee bean size, and raw, roast and liquor quality were not significantly affected by the potato, tomato and bean intercrops, which gave positive net economic benefits. Potatoes planted between all the coffee rows gave the largest marginal rate of economic return, followed by tomatoes in combination with beans. The technically and economically viable intercrops for coffee were potatoes, tomatoes, beans, and tomatoes in combination with beans.Siembra simultánea de café Araébica y cultivos para la alimentatión