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Economic Analysis

Economic analysis - Image - Teacher and Children at school

Economic analysis helps determine a project’s benefit to a society or country.  Each Social Fund/Community-Driven Development intervention must include adequate capacity, processes and methodologies to asses each of the subprojects submitted for consideration.  The program must also be able to determine the project’s impact on poverty alleviation, as measured by increases in income and/or consumption, and improved access to basic needs.

It is important to distinguish between two levels of economic analysis:

  • analysis of the Bank-financed program, which is done during appraisal and entails an assessment of whether the Bank uses reasonable methodologies in its project; and
  • analysis of program-financed subprojects, typically linked to the type of guidelines given to communities for screening economic issues

The program-financed subproject is more difficult to subject to economic evaluation because many of its components cannot be easily quantified in monetary terms (i.e., capacity building, empowerment, etc.). Additionally, the investment component is defined in the course of the project through a demand-driven process, which makes it difficult to assess ex-ante.  Many of the benefits from anticipated investments in natural resource management, education and health, for example, similarly defy quantification.

Because Social Fund and CDD projects are multi-sectoral, the content of economic analysis will not be the same for all projects.  Below are some guidelines for conducting ex-ante economic evaluation of projects by type.


Project Type

Recommended Economic Analysis

Social Infrastructure
(Schools and Health Posts/Centers, Training Centers)

Project subcomponents: Materials,
Supplies, Operation and Maintenance Costs, Training of School Boards

  • Separate evaluation for each subcomponent
  • Norms and Standards costs
  • Infrastructure/beneficiary
  • Cost materials/beneficiary
  • Cost supplies/beneficiary
Economic Infrastructure
(Roads, Markets)

Project subcomponents: Operation and maintenance costs Training of maintenance committees

  • Separate evaluation for each subcomponent
  • Cost-benefit analysis making adjustments for import tariffs and exchange rates and conversion factors for other prices
Medium-sized Water & Sanitation

Project subcomponents:
Operation and maintenance costs

  • Cost-benefit analysis making adjustments for import tariffs and exchange rates and conversion factors for other prices
Small Rural Water & Sanitation

Project subcomponents:
Operation and maintenance costs
Training of maintenance committees

  • Separate evaluation for each component
  • Norms and standards
  • Maximum subsidy based on capacity and willingness to pay. 
  • Maximum investment costs per technical option and per capita.

Lessons Learned for Economic Analysis in SF/CDD-type Operations

  1. Operational manuals should provide specifications for economic analysis, including an understanding of how communities look at value for money.
  2. The Implementing Agency should provide data through a Management Information System (MIS) that is amenable to economic analysis (i.e., Cost/Beneficiary data).
  3. Sectors that tend to be weaker in calculating costs (e.g., health, education) should be encouraged to determine unit costs per beneficiary. 
  4. Screening mechanisms throughout the project cycle should be incorporated into SF/CDD-type projects.

 Related Reading

Elements of Economic Analysis of Social Funds to be Included within Project Appraisal Documents (42kb pdf)
Presentation from World Bank Human Development Week, March 1999
by Julie Van Domelen

Economic Analysis of Social Investment Fund Projects (67kb pdf)
World Bank, April 1998
by Cecilia Pérez de Castillo

Economic Analysis of Social Investment Fund Projects: Case Studies and Minimum Requirements Proposal (151kb pdf)
World Bank, October 1998
by Cecilia Pérez de Castillo and Raúl Lema

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