The accuracy of benefit-cost analysis for transport projects supported by the Asian Development Bank

This paper analyses the accuracy of Benefit-Cost Analysis (BCA) of transport projects financed by the Asian Development Bank (ADB). Ex post evaluation of BCAs outside Europe and North America has been largely missing from the current literature. This study covers 59 roadway projects in developing countries funded by ADB and examines the accuracy of BCA results through four dimensions: frequency, magnitude, correlation, and tendency. We found that under an average project completion rate of 95.33%, the average construction cost overrun for 59 roadway projects is 10.71%, equivalent to USD 71.4 million. Grounded on 23 projects disclosing detailed economic analysis, we discovered a systematic tendency to understate both the present values of cost (18 out of 23 projects) and the present values of future economic benefits (13 out of 23 projects) in ex ante BCA. Furthermore, more than half of projects (25 out of 47) underestimated EIRR, and about 52.17% of them (12 out of 23) understated NPV. Since the underestimation of economic benefits is too small to counterbalance the underestimation of costs, the project EIRR is on average 5.4% lower than the initial expectation. Moreover, we discussed ADB’s choice of the social discount rate, shadow price, and counterfactual base scenarios, which significantly influence the accuracy of BCA results and the reliability of decision-making grounded on BCA results. Lastly, the causes of cost overruns and benefits underestimations were analyzed.