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	Table of Contents
p. 23 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 XVI. Appendices XVII. Others

Guidelines for the Economic Analysis of Projects

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VIII. Large Projects, Linkages, and National Affordability

112. Most projects can be treated as marginal projects in the sense that they do not have any substantial influence on other sectors or projects. However, some large projects may have considerable repercussions within the local and the national economy. A large project can be seen as one that affects production levels and prices in the sector of output and in supplying sectors. For such projects, there should be a discussion of linkage effects. A project can also be seen as large in a national context, where it may have a substantial impact upon foreign exchange revenues, expenditures, or budget resources, particular for Bank-financed projects in borrowing countries with smaller population and economies. For such projects, there should be a discussion of national affordability.

113. The linkage effects of large projects will be considerable. Where possible, a quantitative estimate should be made of the main linkage effects. This could include

• effects on capacity utilization of supplying sectors,
• employment generationdirect and indirect,
• effects on prices of output and inputs, and
• direct and indirect income generation and its distribution.

114. The issue of national affordability needs to be discussed in the context of investment possibilities for the country as a whole, and projected macroeconomic forecasts. Where a significant proportion of investment funds or foreign exchange resources will be committed, a statement should be provided of

• other large projects that may compete for resources simultaneously,
• the net foreign currency flows over the project life,
• the net flows to the government over the project life,
• the effect on the national debt measured by increases in debt and debt servicing ratios, and
• possible effects on the exchange rate of substantial capital inflows at the beginning of the project.

In the case of both foreign currency and government budget flows, it can be expected that positive net flows will be delayed until late in the project, especially where incentives are given in the form of tax holidays.

115. The assessment of large projects will be more extensive than for smaller projects. This is generally justified in terms of the funds being committed within a particular country. A range of indicators can be used, incorporating wider considerations of economic impact and national affordability. The results of these wider assessments can be summarized alongside the basic project worth criteria (see Appendix 18).

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