Project: Cost-Benefit Analysis of Investment Support

The analysis conducted under this project is part of a broader Evaluation-Based Cost-Benefit Analysis (CBA) consultancy with the Millennium Challenge Corporation (MCC).

MCC’s Investment Support and Financial Services Activities (2008-2012) was one of the three activities under the Productive Development Project (PDP). The Activity targeted to attract private investment and various financing types for high-value economic activities in the Northern Zone of El Salvador. The Investment Support Activity provided funding for a financing facility supporting investments in the tourism and handicraft sectors and start-up businesses.

An earlier CBA (Closeout CBA) by MCC and a performance evaluation by Mathematica Policy Research followed the Activity’s completion. Limestone reviewed the Closeout CBA and the independent performance evaluation for conducting an evaluation-based CBA (ECBA). 

Like MCC’s Closeout CBA, the ECBA captures the benefits of access to finance for borrowers and how it increases employment opportunities in the Northern Zone. To conduct the ECBA, Limestone used information from a variety of sources, including:

• MCC survey data on loan portfolio;
• MCC administrative data on borrowers’ wage expenditures;
• Mathematica Policy Research survey data on earnings in the Northern Zone;
• International Labor Organization (ILO) data on El Salvador earnings and occupations by education.

Limestone utilized the data resources for the ECBA to:

• Update borrower’s investment cash flows;
• Update the number of full-time equivalent positions generated by the investments;
• Update wage expenditures by the borrowers;
• Estimate the economic opportunity cost of labour by accounting for alternative earnings of skilled and unskilled labour in the Northern Zone of El Salvador.

Furthermore, Limestone conducted a stakeholder analysis of the intervention as a part of ECBA to measure the economic impacts on borrowers, employees, and MCC separately. The results show that, on average, borrowers are not at a significant loss or benefit. However, the gains from increased employment more than compensate for the costs of the program.