Modelling major projects: What are the factors that determine net social benefits?

Economic impact statements are part and parcel of project proponents seeking government assistance, infrastructure, or environmental clearance. Such impact assessments are increasingly being conducted with computable general equilibrium (CGE) models. Frequently, however, CGE modellers do not report results in economic welfare terms nor give sufficient attention to the proper simulation requirements for determining net social benefits correctly. In this paper we take the example of a major mining project in the Western Australian region and model it under a variety of stylized scenarios in order to demonstrate the key determinants of an economic welfare measure, gross national disposable income (GNDI). We show that GNDI is sensitive to such factors as: terms of trade effects; profitability; public concessions and infrastructure; cost of foreign financing; and taxation of foreign-owned returns.