An Economic Framework for Assesing Development Impact

In: Harvard Business School, February 2003

Multilateral institutions provide support to private projects in developing nations with the goal of stimulating growth and reducing poverty. The institutions may lend fund directly, provide support indirectly though guarantees, or take equity positions in project companies. As a basis for participation, they need to understand a project's private and social returns. This note discusses the differences between private and social returns, and describes an economic framework for assessing a project's ERR (economic rate of return). This framework begins by analizing a project's impact from the perspective of the project financiers (the private rerun). The framework then identifies other stakeholders who might be affected, directly or indirectly, by the project, and examines the impact of each group.