Summary of simulation results

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The above results can be summarized in Table 6.6 and Figure 6.2. On the

vertical axis of Figure 6.2, we plot the overall benefi t–cost ratio. Higher up

the axis, the project is bound to have substantial political support, especially

from the non-poor. On the horizontal axis, we plot the poor’s share in total

benefi ts from the investment.15

The above simulations can only be approximations of actual projects, as

they take as the measure of benefi t the impact derived from a regression model

rather than from a detailed assessment of specifi c markets. Furthermore in

most cases benefi ts are assumed to arise immediately and to be constant

0

1

2

3

4

5

6

–100.0 0.0 100.0 200.0

% of benefits going to the poor

Benefit–cost ratio

Electricity

Roads

CARP

Irrigation

Education (public)

Figure 6.2 Benefi t–cost ratios vs. benefi t coverage for the poor

Table 6.6 Summary of simulation results

Electricity Roads CARP Irrigation Education

(public only)a

PVb of total benefi ts (’000 pesos) 97 388 761 845 350 736 18 708 734 6 639 218 938 576 218 938 576

PV of benefi ts to the poor (’000 pesos) 12 748 961 (338 171 186) 3 345 476 12 145 10 358 596 10 358 596

PV of total costs (’000) 18 203 094 313 456 728 175 474 402 14 780 201 227 578 718 55 819 572

Share of non-poor in benefi ts (%) 87 140 82 –83 95 95

Share of poor in benefi ts (%) 13 –40 18 183 5 5

Overall benefi t/cost ratio 5.35 2.70 0.11 0.0008 0.96 3.92

Notes:

a Excludes private out-of-pocket expenses met by families themselves.

b PV is present value.

over time. Effi ciency requires a benefi t–cost ratio exceeding unity and from

this perspective the irrigation and agrarian reform packages appear highly

ineffi cient. Even the education package has measurable benefi ts below the

full costs involved. However, the electricity and road packages are found to

have high returns, with rural electrifi cation having the highest benefi t–cost

ratio and the largest effect on the poor. It is also expected to have political

support, given the high overall benefi ts.

However, the simulations emphasize the need to undertake complementary

measures to increase the returns to investments. Quite expectedly, the

model captures the substandard performance of current infrastructure.

For irrigation investments, the model assumes the same poor state of

current irrigation systems. For agrarian reform, the lesson here is that

land distribution alone will not result in desired income gains for the

poor. It has to be coupled with aggressive provision of support services. In

addition, the simulations show that some broad categories of expenditure,

in this case principally electrifi cation, can have strong growth and poverty

reduction effects.