Pakistan Institute of Development Economics



Shadow Prices for Pakistan: An Assessment of Alternative Estimates

Recently, there have been four attempts to estimate shadow prices for Pakistan. These are (i) Squire et al. (5J.(ii) Guisinger [Il. (iii) Khan [2], and (iv) Weiss [7].1 The aim of this paper is to assess these alternative estimates in terms of their usefulness for the economic analysis of policies and projects in Pakistan. As the study titles indicate, each study pursues a somewhat different aim, although there is substantial overlapping in the parameters considered and the data used in their computation. The Sill study is an attempt to apply shadow pricing methodology to macro policy issues. To do so, it estimates specific parameters, but its primary objective is not to produce a detailed and comprehensive set of shadow prices. The SG study is a lengthy commentary on the methodology and data used by Squire -Little-Durdag [5], in terms of their adequacy for policy analysis in Pakistan. Whereas both Squire -Little-Durdag and Guisinger (I] estimate social prices, Khan ‘s analysis [2] is purely in terms of efficiency prices. In this study, Khan estimates the shadow discount rate, also known as the shadow price of capital and the shadow wage of unskilled labour. He is primarily concerned with project evaluation, not policy evaluation. Like Khan, Weiss [7] is concerned with project evaluation. However, he approaches the task from a different angle: the derivation and use of income weights in project appraisal.

Isabelle Tsakok

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