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Economic rate of return (ERR) analysis--a form of cost-benefit analysis that estimates the net impact of project investments--is an important tool for strengthening accountability in development assistance. The Millennium Challenge Corporation (MCC) incorporates this methodology as a cornerstone of its due diligence process when it reviews compact proposals from eligible countries.
Demonstrating its commitment to transparency, MCC recently launched a groundbreaking public web feature that explains how economic rate of return analysis is conducted and how its results are used to guide MCC and its partner countries in their project investment decisions. By posting the actual analysis online, MCC is inviting interested observers to review the economic rationale of each project and to experiment with an interactive feature that allows users to change key parameters.
While applauding the transparency of the web resource, some external observers think the ERR plays too much of a role in MCC funding decisions at the expense of issues such as poverty impact and beneficiary targeting. Do these critics have a point? This MCC initiative provides an excellent opportunity for a broader discussion of how such technical analysis can be used to enhance aid effectiveness, and whether important issues may be neglected in the process.
This event featured a presentation by MCC Chief Economist Franck Wiebe, who introduced the new web resource. CGD Senior Fellow Steve Radelet moderated a panel discussion, which included discussants Manuela V. Ferro, Manager, Country Economics, Operations Policy and Country Services, World Bank, and Asma Lateef,Director, Bread for the World Institute. CGD's Senior Policy Analyst Sheila Herrling opened the event.