Economic Growth in Nepal: Macroeconomic Determinants, Trends and Cross-Country Evidences
Journal of World Economic Research
Volume 9, Issue 1, June 2020, Pages: 76-82
Received: Feb. 24, 2020;
Accepted: Apr. 20, 2020;
Published: May 19, 2020
Views 235 Downloads 108
Luna Ghimire, Ace Institute of Management (AIM), Pokhara University, Pokhara, Nepal
Ajay Kumar Shah, Ace Research Centre, Ace Institute of Management (AIM), Pokhara University, Pokhara, Nepal
Ram Kumar Phuyal, Centre for Economic Development and Administration (CEDA), Tribhuvan University, Kirtipur, Nepal; National Planning Commission, Government of Nepal, Kathmandu, Nepal
Using time series data of the last twenty-seven years (1990 to 2016), this study tries to go in-depth regarding the relationship between macroeconomic variables and its impact on economic growth of Nepal. Further, this study also compares the economic growth of Nepal with six Asian countries such as Bangladesh, Bhutan, China, India, Pakistan and Sri Lanka. The study is based on secondary data which are extracted from a legitimate source of World Bank. The dependent variable of this study is Gross Domestic Product (GDP) growth (annual%). To observe the GDP growth, some independent variables like exchange rate, export of goods and services, Foreign Direct Investment (FDI) net flow, Gross Fixed Capital Formation (GFCF), import of goods and services and inflation are chosen. Based on the variables, statistical tools such as multiple linear regression, Karl Pearson's correlation, and trend analysis are run. As per the result, exchange rate, GFCF, and import have a significant impact on the economic growth of Nepal while export, FDI, and inflation do not have a significant impact. Further, the cross-country evidence shows that Bangladesh and India have a significant positive GDP growth trend, while Bhutan and Sri Lanka have a positive GDP growth trend but do not have a significant growth. Also, China, Nepal, and Pakistan do not have a significant growth and their growth trend is negative. Based on the results and analysis it is suggested that a strong exchange rate leads low cost of production with cheap imports and also helps to control inflation due to low prices of foreign goods and services. In this context, the policymaker should initiate to make tight policies against the reduction of inflation in the country.
Ajay Kumar Shah,
Ram Kumar Phuyal,
Economic Growth in Nepal: Macroeconomic Determinants, Trends and Cross-Country Evidences, Journal of World Economic Research.
Vol. 9, No. 1,
2020, pp. 76-82.
Boldeanu, F. T., & Constanitnescu, L. (2015). The main determinants affecting economic growth. Bulletin of the Transilvania University of Braşov, 8 (2), 330-338.
Gross Domestic Product. (2018, June 7). Retrieved from Wikipedia, the free encyclopedia: https://en.wikipedia.org/wiki/Gross_domestic_product
Gautam, B. P. (2014, December). NRB Working Paper-Financial Development and Economic Growth in Nepal. Retrieved from Nepal Rastra Bank Website: https://nrb.org.np/red/publica.php?tp=working_papers&&vw=1000
Rajesh Sharma, P. K. (2018). Impact of Selected Macroeconomic Determinants on Economic Growth in India: An Empirical Study. Sage, 1-11.
Kira, A. R. (2013). The Factors Affecting Gross Domestic Product (GDP) in Developing. European Journal of Business and Management, 148-158.
Tjukanov, T. (2011). Gross Domestic Product as a Modern-day Economic Indicator. Helsinki Metropolia University of Applied Sciences.
Chasco, D. H.-J. (2016). Long-Run Deteminants of Economic Growth in South America. Journal of Applied Economics., 169-192.
Villegas-Zermeño, C. E.-F. (2015). Foreign direct investment and gross domestic product growth. Procedia Economics and Finance, 198 – 207.
Nwaogu, U. G., & Ryan, M. J. (2015, February). FDI, Foreign Aid, Remittance and Economic Growth in Developing Countries. Review of Development Economics, 19 (1), 100-115. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/rode.12130/full
Tuan, C., Ng, L. F., & Zhao, B. (2009). China’s post-economic reform growth: The role of FDI and productivity progress. Journal of Asian Economics, 280–293.
Upreti, P. (2015). Factors Affecting Economic Growth in Developing Countries. Major Themes in Economics.
Betyák, O. (2012). An Econometric Analysis of Determinants of Economic Growth in Crisis Countries of European Union. Gazimağusa, North Cyprus: Eastern Mediterranean University.
Mbulawa, S. (2015). Effect of Macroeconomic Variables on Economic Growth in Botswana. Journal of Economics and Sustainable Development, 68-77.
Cunningham, N. (2008). The Effects of Macroeconomic Factors on Economic Growth Within the Former Soviet Union. Stillwater, Oklahoma State.
Kormendi, R. C., & Meguire, P. G. (1985). Macroeconomic Determinants of Growth: Cross-Country Evidence. Journal of Monetary Economics, 141-163.
Sarel, M. (1996). NonlinearE ffectosf Inflation on EconomicG rowth. Staff Papers (International Monetary Fund), Vol. 43 (No. 1 ), 199-215.
Fouad K. AINajjar. (2002). Economic Freedom and Macroeconomic Determinants of Economic Growth:. Review of Accounting and Finance, 1 (3 ), 74 - 84.
Bassanini, A., & Scarpetta, S. (2001). The Driving Forces of Economic Growth: Panel Data Evidence for the OECD Countries. OECD Economic Studies, 9-55.
Iqbal, Z., & Zahid, G. M. (1998). Macroeconomic Determinants of Economic Growth in Pakistan. The Pakistan Development Review, 37 (2), 125-148.
Chakraborty, C., & Nunnenkamp, P. (2008). Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis. World Development, Vol. 36 (No. 7), 1192–1212.
Ali, M. A., Saifullah, M. K., & Kari, F. B. (2015). The Impact of key Macroeconomic factors on Economic Growth of Bangladesh: A VAR Co-integration Analysis. International Journal of Management Excellence, 667-673.
Chughtai, M. W., Malik, M. W., & Aftab, R. (2015). Impact of Major Economic Variables on Economic Growth of Pakistan. ACTA Universitatis Danubius, 11 (2), 94-106.
Hussain, A., Sabir, H. M., & Kashif, M. M. (2016, June). Impact of Macroeconomic Variables on GDP: Evidence from Pakistan. European Journal of Business and Innovation Research, 4 (3), 38-52.
Dhakal, D., Pradhan, G., & Upadhyaya, K. P. (2009). Nepal and Bhutan: economic growth in two Shangri-Las. International Journal of Social Economics, 36 (1/2), 124 - 137.
Phuyal, R. K. and Sunuwar, S. (2018). A Sectoral Analysis of Foreign Direct Investment on Economic Growth of Nepal. Journal of Business and Social Sciences Research, 3 (1), 1-12.
Karmacharya, B. K. (2001, March 1). Economic Reforms in Nepal and their Implications for Trade, Economic Growth, Inequality and Poverty. South Asia Economic Journal, 2: 1, 87-103. Retrieved from BookSC: http://booksc.org/book/40487812/7f8078.
Themba, G. Chirwa, N. M. (2016). Macroeconomic Determinants of Economic Growth: A Review of International Literature. South East European Journal of Economics and Business, 33-47.