Shadow prices for project evaluation: A case study of Bahrain.

The main objective of this thesis is to develop a framework for the social evaluation of projects in Bahrain by estimating a set of shadow prices and social parameters. In general, and when market distortions prevail, the use of shadow prices intends to take an economy towards an optimal allocation of resources by valuing goods and factors at their social opportunity costs. The methodology adopted for the estimation of shadow prices and social parameters is that of the "World Bank" developed by Squire and van der Tak. The World Bank approach is selected to guide the empirical work after a study of three main approaches of project evaluation, which includes in addition to the World Bank's that of Little and Mirrlees (1974) and the UNIDO Guidelines. The shadow prices estimated are those for traded goods and labour as well as some social parameters. Shadow wage rates at social prices are estimated for Bahraini and migrant labour. Social parameters are estimated for Bahraini households only and include the consumption distribution weights, the value of public income, the summary distribution measure, the critical consumption level and the accounting rate of interest. The major findings derived from our empirical work are that shadow prices of traded goods are relatively high and are thus close to their market prices, shadow wage rates for Bahraini labour are mostly close to their market values, and that shadow wage rates generated by employment of migrant labour are relatively high and are clearly higher than those of Bahraini labour.