Nepal : Trade and Competitiveness Study
This study analyzes Nepal's trade policies and performance, identifies constraints to increasing trade competitiveness, and recommends policy changes and technical assistance to improve trade performance. The study is timely, as Nepal's i...
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| Format: | Foreign Trade, FDI, and Capital Flows Study |
| Language: | English en_US |
| Published: |
Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2003/10/6338516/nepal-trade-competitiveness-study http://hdl.handle.net/10986/14417 |
| Summary: | This study analyzes Nepal's trade
policies and performance, identifies constraints to
increasing trade competitiveness, and recommends policy
changes and technical assistance to improve trade
performance. The study is timely, as Nepal's interim
Poverty Reduction Strategy Paper of 2003 assigns a key role
to trade and exports as drivers of broad-based economic
growth-one of the four main pillars of its strategy. Key
conclusions of this report suggest Nepal's trade
policies are generally sound, and the country is competitive
in a variety of products. However, these positive factors
are tempered by constraints that make Nepal's
productivity among the lowest in the region, create an
inhospitable business climate, and discourage foreign direct
investment-a key conduit for export-market access and
technology transfer. The most critical constraints are: 1)
delays in customs and transshipment to India's Kolkata
port; 2) high infrastructure costs, especially transport and
power; 3) a rigid, formal labor market; and, 4) weak policy
and institutions in the areas of taxation, investment and
trade promotion. But Nepal's prudent macroeconomic
stance throughout most of the 1990s, helped increase its
competitiveness. Low levels of domestic borrowing by the
public sector, the nominal anchor of an exchange-rate peg
with India, and a large jump in remittances by expatriate
Nepalese labor have enabled Nepal to maintain macroeconomic
stability. Notwithstanding, and despite liberalization and
growth of trade in the 1990s, the study shows that
competitiveness of Nepal's economy is low, as measured
by firm-level surveys in manufacturing, farm yields, and
aggregate productivity estimates. Labor productivity in
manufacturing and agriculture are among the lowest in the
region, while manufacturing unit labor costs are among the
highest, even though Nepal has comparative advantage in a
range of agriculture and manufacturing products. This study
shows how three key factors contribute to low price
competitiveness and productivity in Nepal's economy: a)
inadequate mechanisms and incentives for firms to acquire
new technology, b) weak infrastructure, and, c) an
unfavorable business climate. Conclusions suggest major
impacts of trade on the poor can come from switching to high
value cash crops from subsistence agriculture. A key
constraint to that is inadequate transportation
infrastructure. Growth of transport can lead to welfare
effects for the poor by enabling commercial crops and use
more fertilizers by farmers. Transportation also has direct
welcome effects through creation of employment and
income-generating opportunities. To this end, transition
from traditional subsistence agriculture toward
higher-margin, tradable crops (such as spices, tea, and
vegetables) can be promoted by increasing access to
year-round irrigation, inputs, technology, and, most
importantly, markets. |
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