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Working Paper

Modeling the Impact of Large Infrastructure Projects : A Case Study from Niger--Macroeconomic Assessment of Public Investment Options

CONTINGENT LIABILITIES MONETARY POLICY DEFICIT BASIS POINTS FOREIGN DEBT ELASTICITY OF SUPPLY INTERNATIONAL CAPITAL STOCK NATIONAL ECONOMY STRUCTURAL CHANGE INTEREST RATE OF RETURN PROJECTIONS INVESTMENT RATE DEBT STOCK GOVERNMENT SPENDING INVESTMENT POLICIES INTEREST RATE REAL GDP EXCHANGE BALANCE OF PAYMENTS GDP PER CAPITA EXPORTS DEVELOPING COUNTRIES ELASTICITY INFRASTRUCTURE DEVELOPMENT TOTAL DEBT REVENUES LOAN VARIABLES REPAYMENT PERIOD MARKET FAILURE TAX PAYMENTS AGRICULTURAL OUTPUT INFLATION INTERNATIONAL BANK MACROECONOMIC ANALYSES INSTRUMENTS BUDGET CENTRAL BANK DEVELOPMENT MACROECONOMIC STABILITY INFLUENCE INVESTMENT SPENDING COSTS ALTERNATIVE INVESTMENT CURRENCY DOMESTIC CAPITAL DEVELOPMENT STRATEGIES FINANCES RECURRENT EXPENDITURES OPTIONS MACROECONOMIC RISKS INTEREST RATES MONETARY FUND FAILURES NET EXPORTS DEBT PRIVATE INVESTMENT RETURN INTERNATIONAL DEVELOPMENT DOMESTIC DEBT LOANS TAX REVENUES INVENTORIES DEBT SERVICE GROSS DOMESTIC PRODUCT BORROWING COST FINANCE LOAN TERMS PUBLIC INVESTMENT TAXES FIXED EXCHANGE RATE FISCAL DEFICIT EXPENDITURE NATURAL MONOPOLIES INFRASTRUCTURE INVESTMENT DEBT FINANCING MACROECONOMIC INSTABILITY CONSUMPTION AGGREGATE SUPPLY CAPITAL DEBT-SERVICE TRANSPARENCY MARKET FAILURES FOREIGN FINANCING FUTURE VALUE ECONOMIC VALUE COMPETITIVENESS RETURNS FIXED CAPITAL MACROECONOMICS PURCHASING POWER ECONOMIC SECTORS DEVELOPMENT STRATEGY DEMAND INVESTMENT PROJECTS AGGREGATE DEMAND SHARE OF INVESTMENT REPAYMENT PRICE CHANGES ECONOMIC FUNCTIONS EXPENDITURES AGRICULTURE AMORTIZATION REAL EXCHANGE RATE MARKET INTERNAL RATES OF RETURN FOREIGN LOANS INVESTMENT POLICY DEBT RATIOS PUBLIC DEBT MACROECONOMIC VARIABLES SIDE EFFECTS TAXATION ECONOMIC DEVELOPMENT INVESTMENT STRATEGIES TRADE MARGINAL PROPENSITY TO SAVE GDP GOODS GLOBAL TRADE GROWTH RATE STOCKS INVESTMENT MACROECONOMIC ANALYSIS RATES OF RETURN SHARE COLLATERAL POVERTY MONOPOLIES SUPPLY DEBT SERVICE PAYMENTS REVENUE EXTERNAL DEBT INTERNAL RATE OF RETURN INVESTMENTS CONSUMER PRICE INDEX MULTIPLIER EFFECTS MARGINAL PROPENSITY TO IMPORT EXCHANGE RATE GDP DEFLATOR PUBLIC SPENDING CAPITAL INVESTMENT LIABILITIES MARGINAL PROPENSITY TO CONSUME PRICES GUARANTEE GROWTH PROJECTIONS BENEFITS DEBT RELIEF HUMAN DEVELOPMENT
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World Bank, Washington, DC
Africa | Niger
2015-11-09T22:40:44Z | 2015-11-09T22:40:44Z | 2015-11

Evidence illustrates that investment in infrastructure is essential to accelerate inclusive growth. Indeed, a number of Sub-Saharan African (SSA) countries have begun to devote greater resources to large-scale public investment projects. Nevertheless, while massive projects can potentially generate large benefits there are considerable risks. Cost overruns, poor implementation quality, inadequate operational and maintenance capacity, and negative social or environmental impacts can severely undercut a project’s anticipated social and economic returns. Moreover, projects, which are expensive to develop and maintain can impact on debt dynamics and in some cases macroeconomic stability. Yet, given the complex nature of such projects it is often difficult to ascertain whether it is worthwhile to proceed with a project and if so, how should it be financed and implemented. Historically, computable general equilibrium (CGE) models have been used to assess the prospective impacts of large public investment projects. However, such models are a complex and time-consuming process and are often too broad to precisely capture the localized impact of specific projects. This paper proposes a simple, but more user-friendly model. By inputting information on the project’s construction, operation, and anticipated returns, the user is able to assess the project’s net impact on the economy and weigh up the costs and benefits of different approaches. The model was developed in response to a request from the Nigerien authorities to assess the macroeconomic impact of Niger’s Kandaji Dam project. It found that while costs would equal more than 10 percent of 2013 GDP during 2014-48, the expansion of domestic production spurred by increased demand during the construction phase will increase GDP by 0.25 percent above the baseline projection and boost fiscal revenues by an additional 0.45 percentage points of GDP.

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