Conversion factors and shadow exchange rates
Open Access
- 1 June 1986
- journal article
- basic principles
- Published by Taylor & Francis in Project Appraisal
- Vol. 1 (2) , 106-120
- https://doi.org/10.1080/02688867.1986.9726548
Abstract
In calculating shadow prices for use in project appraisals, the relationship between the shadow exchange rate and conversion factors (accounting ratios) for specific items or categories of inputs is a common source of confusion. This article sets out to clarify links between choice of numeraire, shadow exchange rates and conversion factors in the UNIDO and Little—Mirrlees methodologies. It outlines a general method of estimating sets of shadow prices which can easily be updated in the light of extra information or as a result of changes in economic policy. Finally, the implications of an overvalued exchange rate and/or an impending currency devaluation for shadow pricing are discussed. A procedure to adjust shadow prices in such circumstances is described.Keywords
This publication has 5 references indexed in Scilit:
- Investment and Trade for a Developing Economy with Economies of Scale in IndustryThe Review of Economic Studies, 1976
- HOW TO USE AND ESTIMATE SHADOW EXCHANGE RATESOxford Economic Papers, 1974
- ESTIMATING THE SHADOW PRICE OF FOREIGN EXCHANGE IN PROJECT APPRAISALOxford Economic Papers, 1974
- Benefit-Cost Analysis and Trade PoliciesJournal of Political Economy, 1974
- Foreign Exchange Shadow Prices: A Critical Review of Current TheoriesThe Quarterly Journal of Economics, 1971