Cost–benefit analysis and the rates of return of infrastructure projects : evidence from international organizations

In this paper we analyse data on the rates of return of investment projects sponsored by three international institutions: the European Union (EU), the European Bank for Reconstruction and Development (EBRD), the World Bank (WB). The focus of the paper is on the variability of ex-ante economic rate of returns (ERR), of financial rates of return (FRR, available for EU and EBRD) and ex-post or re-estimated economic rates of return (RERR, available for WB only), along with the co-financing rate (EU). We propose a framework of analysis of FRR and ERR variations across projects, sectors, financing institutions and time, of the wedge between ERR and FRR, and of the gap between ERR and RERR. Our main conclusions are that the informational content of projects’ rates of return is valuable and is needed for cost–benefit analyses, and that sectors, countries, time and funding institutions explain much of the variability of these rates. We advocate the collection of standardized and comparable data since our framework could be used for comparing rates of return variability of development projects across countries, time of approval or completion, or any other relevant sampling criterion