Estimation of economic discounting rate for practical project appraisal: the case of Turkey

This study focuses on estimating an economic discounting rate (EDR) to be used in project appraisals by the State Planning Organisation (SPO) of Turkey. The EDR is a policy tool used for selecting the best projects to meet the economic targets of development plans and to enable planners to choose the most profitable and feasible projects. Since the resources available to the economy are scarce, planners are expected to use cost-benefit analysis (CBA) especially, Net Present Value (NPV) criteria. The NPV is considered to be more reliable than the internal rate of return. Therefore, selection of an appropriate social discount rate is a key issue in the application of CBA for project appraisal. In this article, an attempt is made to estimate the EDR of Turkey via a “growth models” approach, providing fresh evidence for enhancing the project appraisal system in Turkey. The results reveal that the EDR of Turkey is 12.94% in the estimation period of 1985-2009.