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Estimating the Economic Opportunity Cost of Capital for Public Investment Projects : An Empirical Analysis of the Mexican CaseThis paper offers an assessment of the
 methodologies employed to estimate the economic opportunity
 cost of capital for public sector projects, relying on the
 Mexican case for an applied empirical exercise. The
 traditional weighted cost of capital (top-down) approach
 used in the estimation of Mexico's economic opportunity
 cost of capital is reviewed and compared to the supply price
 (bottom-up) approach. With respect to previous studies using
 the top-down approach, this paper explores the contribution
 of domestic savings and expands the analysis to include a
 more detailed examination of the available macroeconomic,
 labor, financial, and tax information. The re-estimated
 top-down economic opportunity cost of capital for Mexico
 comes to 10.4 percent. To confirm these results and provide
 additional insights regarding the alternative bottom-up
 approach, the economic opportunity cost of capital is
 estimated using the supply price plus externalities method.
 For the case of Mexico, this paper recommends using a
 combination of estimation models (both the top-down and
 bottom-up approaches) to check the consistency of results
 and re-estimating the economic opportunity cost of capital
 every five years to accommodate for macroeconomic and fiscal
 changes. More broadly, the paper acknowledges the
 complexities involved in the estimation of the economic
 opportunity cost of capital for public investment projects
 and underlines the relevance of additional considerations,
 such as changes in global economic trends and country risk
 ratings, tax distortions, financial sector improvements, the
 impact of reforms, and data availability.
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Capital Will Not Become More Expensive as the World AgesAging of populations and convergence between developed and developing countries in per capita incomes are shaping the evolution of saving, investment, capital flows, and, in particular, the cost of capital. When considering these trends, the existing literature argues for either continued, low interest rates, or sharply rising ones. This paper presents an alternative view: modest rises in interest rates, which result from a combination of increases in the global weight of high-saving developing economies (limiting declines in global saving), and decelerations in the rate of growth in developing countries (constraining upward pressure in global investment). For the majority of countries, slowing capital demand resulting from decelerating growth, coupled with structural changes that influence its attractiveness as a destination for capital, moderate increases in interest rates. Changes in key assumptions do not alter this view. More specifically, the small rise in interest rates persists even in a scenario where growth in developing countries decelerates more slowly, or when elasticities governing the behavior of saving and investment are varied.
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Africa and Arab Gulf states : Divergent Development Paths and Prospects for ConvergenceIn spite of the similarities between Sub-Saharan Africa and the Arab Gulf region (Gulf Cooperation Council states), development policies implemented in these two regions of the world have produced markedly different and even divergent outcomes. While Gulf Cooperation Council states have drawn on hydrocarbon revenues to dramatically transform their economic landscape, Sub-Saharan African countries have exhibited abysmal economic and social outcomes. The remarkable increase in personal income and large current account surpluses in Arab Gulf states is in sharp contrast with widespread poverty and recurrent balance of payments crises in Sub-Saharan Africa. This paper reviews the possible causes of these divergent development paths and discusses the prospects for economic convergence in the new globalization landscape of growing trade ties between the two regions. In particular, it shows that development models underpinned by institutional continuity and intergenerational accountability could enhance long-run growth in Sub-Saharan Africa and income convergence between the two regions.