Catalog

	Table of Contents
p. 40 of 74 BACK | NEXT I. Introduction II. Background III. The Economic Rationale of A Project IV. Macroeconomic and Sectoral Context V. An Integrated Approach To Economic Analysis VI. Identification and Quantification of Costs and Benefits VII. Valuation of Economic Costs and Benefits VIII. Large Projects, Linkages, and National Affordability IX. Least-Cost and Cost-Effective Analysis X. Investment Criteria: Economic Viability XI. Discount Rate XII. Uncertainty: Sensitivity and Risk Analysis XIII. Sustainability of Project Effects XIV. Distribution of Project Effects XV. Projects and Policies A. Comparing Financial and Economic Prices B. Effective Protection Or Effective Assisstance C. The Real Exchange Rate XVI. Appendices XVII. Others

Guidelines for the Economic Analysis of Projects : XV. Projects and Policies

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B. Effective Protection or Effective Assistance

196. Analysis of the level of financial and economic prices in a sector, the reasons why they differ, and the effects of possible changes in policy should be part of the Bank's sector work in each country. Such an analysis should be focused on showing where the structure of incentives leads and what the effects of policy reform on incentives might be. A starting point is the measurement of protection using financial and economic price estimates.

197. Protection coefficients for sectors use the comparison of financial and economic prices. Such comparisons indicate the extent to which domestic policy and market structures protect producers from foreign supplies and, in the process, affect incentives for domestic production and consumption. The nominal protection coefficient compares the financial and economic price of a marketed output. The effective assistance ratio considers the total return to the activity, considering the protective effect of net taxes on outputs and net subsidies on inputs. It can also be calculated at the project level.

198. The effective assistance ratio for a sector can be compared with those of other sectors to identify which receive the most protection. Where the effective assistance ratio shows a high value relative to other sectors, it can be claimed that the sector or project is particularly favored by the structure of taxes and subsidies. In these cases, caution should be exercised in projecting the current policy framework into the future. If adjustments are to be made to policy in the direction of reduced protection, then those sectors that have high protection indicators will be particularly affected. It is preferable to support investment in sectors and projects that are economically viable anyway and would therefore survive substantial changes in policy (see Appendix 28).

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