Shadow prices for trade strategy and investment planning in Egypt
PAGE, J.
This paper presents estimates of efficiency and social accounting prices for commodities and factors of production in Egypt which are appropriate for the period 1979-1985. Shadow price estimates for commodities are based on a modified input-output method which decomposes domestic supply prices into foreign exchange and primary factor content. Shadow prices may differ from prices observed in the market because of non-competitive behavior, externalities, and distortions introduced by government policy. In Egypt, as in many developing economices, policy induced distortions are perhaps the most pervasive and at the same time the most complex cause of divergence between market and shadow prices. In these circumstances market signals may provide an inadequate guide for investment planning and project appraisal, and the need for a consistent set of prices which reflect the resource costs and social benefits of a proposed course of action becomes apparent. Particular attention has also been given to modeling of the market for skilled and unskilled labor in the formal sector and to determination of the shadow wage.
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