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A Preliminary Feasibility Analysis of Regional Industry Promotion Projects

Author Chan-jun Kim, Jae-hong Jang, Ha-yul Song, Chang-uk Byeon, Ju-seok Lee Date 2016.02.01 Page 24
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In pursuing various policies and projects, governments must make optimal choices. They must attempt to optimize the benefits of the same for all of society ?in other words, serve the public interest. To achieve the maximum effect from projects under resource constraints, governments (and their decision-makers) must analyze and determine the feasibility or viability of projects and set their investment priorities accordingly. A preliminary feasibility analysis may be said to consist of the entire process of research and analysis in accordance with general pre-feasibility study principles, with many different forms of analysis for projects. While some projects are relatively fixed in format, such as in the construction sector (e.g., roads, ports, and railways), most projects, as in the regional industry sector, entail a “package” of various policy measures (e.g., infrastructure building, R&D, and human resource training), which makes a standardized methodology difficult to identify.
With regional industry promotion projects in particular, estimates of economic benefit during a preliminary feasibility analysis have different scopes according to project characteristics and actors, while difficulties with predicting and applying market changes, unclear prospects for future value, and “shadow prices” complicate attempts to identify a standardized and structured methodology.
While the aims of regional industry promotion projects may differ individually according to project characteristics and goals, their basic focus lies in promoting local economies by fostering regional industries, thereby increasing resident incomes and improving quality of life. Because the process of creating benefit is different for different regional industry promotion projects and their various policy approaches, not only benefit assessment methods but also the specific terms of benefit must be separately established. A particular difficulty lies in calculating not only direct but also indirect benefit when conducting a feasibility analysis for a regional industry promotion project. Accordingly, a suitable estimation methodology must be established for such analyses that reflect the nature of the project and the local conditions. This study examines preliminary feasibility analysis for fiscal projects to foster regional industries, looking at areas in the course of such analysis that require review or improvement. Its focus lies in offering an alternative methodology from an economic benefit standpoint for the suitability of the social discount rate and value added ratio and for policy support measures (infrastructure, R&D, and human resource training). In particular, it aims to offer an alternative economic benefit approach that captures not only the ripple effect on the market of policy measures (tasks) in infrastructure and human resource training projects, but also the knowledge ripple effect and network effect that may be considered non-market goods in their enhancement of the cluster effect for local industries as a result of the measures in question. It also seeks to suggest possible approaches to improving preliminary feasibility analyses of regional industry promotion projects that take into account their characteristics and local conditions.