Cost-benefit evaluation of LDC industrial sectors which have foreign ownership
PURSELL, G.
This paper describes methods for treating foreign capital in estimating single-period cost-benefit or comparative advantage indicators such as the DRC and the ERC. It is assumed that the foreign capital is specific to each activity, meaning that it would not have entered the country without the activity and has no repercusions on the supply of domestic savings or foreign borrowing otherwise available to finance the country's investment budget. The appropriate treatment is then discussed with respect to four sets of indicators: (1) long run indicators; (2) long run indicators at a specified capacity utilization rate; (3) short run indicators; (4) incremental indicators. It is shown that the presence of the specific foreign capital can make a substantial difference to all these indicators, by comparison with activities in which there is no specific foreign capital invested. These general conclusions are then illustrated with results taken from a larger study of 84 Ivory Coast manufacturing firms.
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