ABSTRACT
In this chapter, the fundamental concept of economic analysis is first discussed. It is logical that economic analysis of development projects should be carried out from a national view point rather than from the angle of a regional or sectorial government department. The purposes of economic analysis are then discussed. Distinctive features of economic strategies in public sector and privately owned projects are then discussed. Various aspects of social and financial costs and benefits including the idea of shadow pricing are deliberated. Shadow pricing is adopted for overcoming certain difficulties such as imperfect pricing mechanism, variation in wages rates, disparity in interest and exchange rates, inflationary forces etc. Major limitations of shadow pricing system are also discussed. This is followed by the method of preparing economic appraisal of a project. This chapter concludes with a brief remark on the usefulness of economic analysis for public sector projects.
