Can You Explain The LM Method Of Project Evaluation In LDC S?

As the developing countries are furnished with distortions in product and a factor market, Prof. Little and Prof. Mirrless have suggested a novel way to measure the costs and benefits in LDCs. There fore we called that method by LM. They tells us that in which way the project is evaluated in the LDCs because there sources are very little. There two main features of their method.

Rather domestic price, foreign exchange measures the true costs and benefits of commodities produced. Therefore, the net value of all the goods, produced should be converted into its foreign exchange equivalent. Foreign exchange may be used as a measuring rod.

The amount of saving in LDCs is less than the socially optimal level. Hence, one additional unit of investment is more valuable than an extra unit of consumption at the margin.
On the basis of these principles LM method have derived the special rate of discount which they have called the accounting rate of interest and the cost of a labor which they have tried to measure with the shadow wage rate.

Every domestic demand and supply has a BOP effect. The rate of foreign exchange is the true yardstick of the costs and benefits to society. Foreign exchange is a reasonable unit of account. Foreign exchange could be used to satisfy domestic demand and supply.