Foreign Exchange Equivalence and Project Appraisal Procedures

Little and Mirrlees (1968, 1974) originally expressed the view that traded and nontraded goods should be shadow priced in terms of their foreign exchange equivalence. This view remains one of the most contentious proposals in the theory of project appraisal. Using a model adapted from Buffie (1987),...

Full description

Saved in:
Bibliographic Details
Published in:The Economic journal (London) 1990-06, Vol.100 (401), p.567-576
Main Authors: Dinwiddy, Caroline, Teal, Francis
Format: Article
Language:English
Subjects:
Balance of payments
Commodities
Economic models
Economic theory
Effects
Export taxes
Fees
Fiscal policy
Foreign exchange
Foreign exchange rates
Price level changes
Prices
Public economics
Public sector
Shadow prices
Tax return adjustments
Taxes
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Little and Mirrlees (1968, 1974) originally expressed the view that traded and nontraded goods should be shadow priced in terms of their foreign exchange equivalence. This view remains one of the most contentious proposals in the theory of project appraisal. Using a model adapted from Buffie (1987), 2 results are presented that simplify and extend previous work on the foreign exchange equivalent (FEE) shadow prices. First, it is shown that it is possible to present a general form of the FEE shadow pricing rule that can be readily adapted whatever the tax adjustment mechanism used. Second, it is shown how this formula can be used to value the balance of payments effects of a project when, as is usually the case, no equilibrating tax policy can be assumed by the practitioner.
ISSN:0013-0133
1468-0297
DOI:10.2307/2234143