Rethinking Cost–Benefit Analysis for Infrastructure Projects: Insights from Japan’s Official Development Assistance Loan Projects

Cost–benefit analysis (CBA), particularly the economic internal rate of return (EIRR), continues to play an important role in infrastructure project appraisal. Using EIRR data from 387 infrastructure projects financed under Japan’s ODA loans (Japanese fiscal years 2001–2020), this study identifies clear sectoral trends: economic infrastructure and brownfield projects generally exhibit higher EIRRs, while no significant differences are observed between tied projects (i.e., projects whose contracts are primarily tied to Japanese firms) and untied projects. A comparison of ex ante and ex post EIRRs for 84 projects shows that estimates may vary due to factors such as changes in demand, project costs, and implementation periods, indicating the practical challenges involved in estimating EIRRs. Qualitative analysis further suggests that non-economic considerations—such as humanitarian needs, national development priorities, and diplomatic interests—may also influence financing decisions. Overall, while CBA remains a valuable and widely used tool, the findings highlight the importance of complementing it with broader sustainability-oriented appraisal approaches that capture the multidimensional value of infrastructure projects.