Calculating Shadow Prices in Pakistan: (Reflections on the Paper by Squire, Little and Durdag) (Report‪)‬

The Paper, "Shadow Pricing and Macroeconomic Analysis: Some Illustrations from Pakistan" (1) by Lyn Squire, I. M. D. Little and M. Durdag (henceforth simply SLD) is an important contribution for two reasons. Firstly, it represents the first major step by the World Bank to provide a comprehensive set of shadow prices for Pakistan using a.methodology [7] that while not as yet officially adopted by the Bank seems likely to have a pervasive influence on all future attempts to define and estimate shadow prices in the Bank's economic work. The Bank's methodology is a lineal descendant of the famous Project Appraisal and Planning for the Developing Countries by I. M. D. Little and J. Mirrlees [6]. Thus, in the SLD paper, two of the leading "shapers" of shadow price technology take Pakistan as one of the first test cases for the practical application of their theories. Secondly, the SLD paper takes aim on the economic analysis of policies, not projects. One of the tenets of shadow pricing is that poor economic policies make it necessary to carry out economic as well as financial evaluations of projects. Implicit in the SLD approach is the notion that to the extent that shadow price analysis improves economic policies, the project analyst's job will be simpler as economic and financial returns will be brought more nearly in line with one another.