Pub Date : 2011-11-20DOI: 10.3126/nrber.v23i2.52746
Shashi Kant Chaudhary
In this paper, Openness Growth Monitoring (OGM) Model is applied to examine the various aspects of trade openness like vulnerability, sensitivity and harmonization as well as the impact of trade openness on per capita income growth for the period of 1990/91 to 2010/11. The results suggest that overall trade openness vulnerability of Nepal is low with the manufacturing and service sector being more open in comparison to the agriculture and energy sectors. While there is strong performance of the openness growth rate for the review period, the average ratio of the openness growth and per capita income growth both with nominal income, is negative. The results indicate low sensitivity of per capita income growth to the trade openness growth. The findings reveal that the productivity benefits from additional trade are higher for the trading partners of Nepal than itself. Hence, it is argued that Nepal has liberalized trade without introducing appropriate internal policies and institutions.
{"title":"Sensitivity of the Trade Openness in Nepal","authors":"Shashi Kant Chaudhary","doi":"10.3126/nrber.v23i2.52746","DOIUrl":"https://doi.org/10.3126/nrber.v23i2.52746","url":null,"abstract":"In this paper, Openness Growth Monitoring (OGM) Model is applied to examine the various aspects of trade openness like vulnerability, sensitivity and harmonization as well as the impact of trade openness on per capita income growth for the period of 1990/91 to 2010/11. The results suggest that overall trade openness vulnerability of Nepal is low with the manufacturing and service sector being more open in comparison to the agriculture and energy sectors. While there is strong performance of the openness growth rate for the review period, the average ratio of the openness growth and per capita income growth both with nominal income, is negative. The results indicate low sensitivity of per capita income growth to the trade openness growth. The findings reveal that the productivity benefits from additional trade are higher for the trading partners of Nepal than itself. Hence, it is argued that Nepal has liberalized trade without introducing appropriate internal policies and institutions.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127022235","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2011-05-20DOI: 10.3126/nrber.v23i1.52752
Mukesh Khanal
One of the methods of measuring the effectiveness of monetary policies is via inspection of monetary neutrality in the economy. It is a concept from classical economics and it suggests that changes in nominal variables do not have any impact on real variables. This paper studies the presence or absence of effective monetary policy in Nepal between 1975 and 2008 by observing money supply (nominal side), and real GDP (real). Results suggest that an increase in money supply immediately lowers the real GDP in the short run, but has no effect on real GDP in the long run. This evidence suggests that Nepal Rastra Bank’s monetary policies between 1975 and 2008 may have been counter-productive in the short-run, but they were effective for long-run growth and stability of the Nepalese economy.
{"title":"Monetary Neutrality in the Nepalese Economy during 1975-2008","authors":"Mukesh Khanal","doi":"10.3126/nrber.v23i1.52752","DOIUrl":"https://doi.org/10.3126/nrber.v23i1.52752","url":null,"abstract":"One of the methods of measuring the effectiveness of monetary policies is via inspection of monetary neutrality in the economy. It is a concept from classical economics and it suggests that changes in nominal variables do not have any impact on real variables. This paper studies the presence or absence of effective monetary policy in Nepal between 1975 and 2008 by observing money supply (nominal side), and real GDP (real). Results suggest that an increase in money supply immediately lowers the real GDP in the short run, but has no effect on real GDP in the long run. This evidence suggests that Nepal Rastra Bank’s monetary policies between 1975 and 2008 may have been counter-productive in the short-run, but they were effective for long-run growth and stability of the Nepalese economy.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124890255","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2011-05-20DOI: 10.3126/nrber.v23i1.52747
Bhubanesh Pant
Remittances contribute largely to the national economy. The remittances sent home by the migrants affect development at both the household and national levels. At the household level, remittances help to reduce poverty, improve standard of living and attain higher educational levels. At the macro level, remittances could be used for entrepreneurship and productive investment which in turn increases job opportunities and income of the people. At the same time, remittance inflows help to augment foreign exchange reserves and improve the current account position. This paper suggests that workable policies and programs need to be developed by Nepal's policy makers for encouraging the utilization of remittances for productive use in order to promote longer-term growth.
{"title":"Harnessing Remittances for Productive Use in Nepal","authors":"Bhubanesh Pant","doi":"10.3126/nrber.v23i1.52747","DOIUrl":"https://doi.org/10.3126/nrber.v23i1.52747","url":null,"abstract":"Remittances contribute largely to the national economy. The remittances sent home by the migrants affect development at both the household and national levels. At the household level, remittances help to reduce poverty, improve standard of living and attain higher educational levels. At the macro level, remittances could be used for entrepreneurship and productive investment which in turn increases job opportunities and income of the people. At the same time, remittance inflows help to augment foreign exchange reserves and improve the current account position. This paper suggests that workable policies and programs need to be developed by Nepal's policy makers for encouraging the utilization of remittances for productive use in order to promote longer-term growth.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126624876","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2011-05-20DOI: 10.3126/nrber.v23i1.52748
R. Kharel, T. Koirala
There is a large volume of literature documenting the analysis of spatial market integration based on individual commodity prices. This paper, instead, contributes to the literature by delineating the existence of spatial market integration using intra-regional price indices. In this context, we use monthly price indices for Kathmandu valley, Hill and the Terai region, which are the only available spatial indices in Nepal. Employing Johansens' bi-variate cointegrating approach for the period from August 1995 to December 2010, we found a strong proposition of Law of One Price (LOP) across the region indicating the fact that spatial markets are highly integrated albeit speed of adjustment is rather slow. This may be due to the existence of oligopolistic pricing behaviour, carteling, asymmetric market information, and syndicate in the transportation system as discussed in various literatures.
{"title":"Spatial Price Integration in Nepal","authors":"R. Kharel, T. Koirala","doi":"10.3126/nrber.v23i1.52748","DOIUrl":"https://doi.org/10.3126/nrber.v23i1.52748","url":null,"abstract":"There is a large volume of literature documenting the analysis of spatial market integration based on individual commodity prices. This paper, instead, contributes to the literature by delineating the existence of spatial market integration using intra-regional price indices. In this context, we use monthly price indices for Kathmandu valley, Hill and the Terai region, which are the only available spatial indices in Nepal. Employing Johansens' bi-variate cointegrating approach for the period from August 1995 to December 2010, we found a strong proposition of Law of One Price (LOP) across the region indicating the fact that spatial markets are highly integrated albeit speed of adjustment is rather slow. This may be due to the existence of oligopolistic pricing behaviour, carteling, asymmetric market information, and syndicate in the transportation system as discussed in various literatures.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115107351","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2011-05-20DOI: 10.3126/nrber.v23i1.52751
B. Budha
This paper analyzes the money demand function for Nepal during the period of the FY 1997/98 to FY 2009/10 using annual data. The empirical results imply that the cointegration tests clearly show the existence of the long-run relationship between real money balances and its determinants, output and interest rate. The vector error correction model has proved the short-run relationship between the real money balances and its determinants. Furthermore, Dynamic OLS estimation of the money demand function indicate that the sign of coefficients of the output and interest rate were found to be consistent with the assumption of the money demand theories.
{"title":"An Empirical Analysis of Money Demand Function in Nepal","authors":"B. Budha","doi":"10.3126/nrber.v23i1.52751","DOIUrl":"https://doi.org/10.3126/nrber.v23i1.52751","url":null,"abstract":"This paper analyzes the money demand function for Nepal during the period of the FY 1997/98 to FY 2009/10 using annual data. The empirical results imply that the cointegration tests clearly show the existence of the long-run relationship between real money balances and its determinants, output and interest rate. The vector error correction model has proved the short-run relationship between the real money balances and its determinants. Furthermore, Dynamic OLS estimation of the money demand function indicate that the sign of coefficients of the output and interest rate were found to be consistent with the assumption of the money demand theories.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129083919","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2011-05-20DOI: 10.3126/nrber.v23i1.52749
S. Neupane
This paper attempts to examine volatility pattern of interbank rate of Nepal using daily and monthly data. The empirical results show significant variation in volatility during the period of study. It depicts the clustering of large and small variances of interbank rate. Moreover, as the sum of ARCH and GARCH coefficients are greater than unity in the daily interbank rate, shocks are highly persistent in the interbank market. However, the SLF of NRB has been observed to lower the persistence of shocks, as the sum of ARCH and GARCH coefficients decreases when effect of SLF and repo are introduced in the model. It depicts that SLF and repo of NRB has been effective to lower the persistence of shocks on daily interbank market, but it increased the mean of conditional volatility. The other important finding of the study is that mean conditional volatility is highest in February and lowest in August.
{"title":"Examining Volatility of Interbank Rate in Nepal","authors":"S. Neupane","doi":"10.3126/nrber.v23i1.52749","DOIUrl":"https://doi.org/10.3126/nrber.v23i1.52749","url":null,"abstract":"This paper attempts to examine volatility pattern of interbank rate of Nepal using daily and monthly data. The empirical results show significant variation in volatility during the period of study. It depicts the clustering of large and small variances of interbank rate. Moreover, as the sum of ARCH and GARCH coefficients are greater than unity in the daily interbank rate, shocks are highly persistent in the interbank market. However, the SLF of NRB has been observed to lower the persistence of shocks, as the sum of ARCH and GARCH coefficients decreases when effect of SLF and repo are introduced in the model. It depicts that SLF and repo of NRB has been effective to lower the persistence of shocks on daily interbank market, but it increased the mean of conditional volatility. The other important finding of the study is that mean conditional volatility is highest in February and lowest in August.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132824640","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2010-11-20DOI: 10.3126/nrber.v22i1.52800
Pitambar Bhandari
The potential output and output gap are key variables in identifying the scope for sustainable noninflationary growth and assessment of the stance of macroeconomic policies. This paper estimates potential output and the output gap in Nepal by different methodologies. The different methodologies produce similar results followed by analysis and observations. The results show that the output gaps were within relatively narrower band since 1990s. The results also reveal some sign of overheating in recent years. The results from production function approach indicate that total factor productivity is declining continuously in the last decade limiting the scope for demand management policies to attain high and sustainable economic growth.
{"title":"Potential Output and Output Gap in Nepal","authors":"Pitambar Bhandari","doi":"10.3126/nrber.v22i1.52800","DOIUrl":"https://doi.org/10.3126/nrber.v22i1.52800","url":null,"abstract":"The potential output and output gap are key variables in identifying the scope for sustainable noninflationary growth and assessment of the stance of macroeconomic policies. This paper estimates potential output and the output gap in Nepal by different methodologies. The different methodologies produce similar results followed by analysis and observations. The results show that the output gaps were within relatively narrower band since 1990s. The results also reveal some sign of overheating in recent years. The results from production function approach indicate that total factor productivity is declining continuously in the last decade limiting the scope for demand management policies to attain high and sustainable economic growth.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"117 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115865179","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2010-11-20DOI: 10.3126/nrber.v22i1.52801
T. Koirala
This paper empirically examines the welfare losses arising from the currently rising inflation rate of Nepal using the method introduced into the literature by Bailey (1956) and the demand for real balance function put forward by Deaver (1970). Utilizing annual time series ranging from 1973 to 2009, the result obtained here supports the theoretical underpinning that the rise in inflation is leading to decrease in real balance and hence increase in welfare loss. It is also found that the rate of increases in welfare cost as a result of significant rises in inflation is sluggish. Further, the finding also leads one to conclude that the significant fraction of real income as welfare cost in the year 2010 corresponds to other factors affecting real balance rather than anticipated inflation. However, the evidence is consistent with the view that such cost may change under the relaxation of restrictions imposed corresponding to government’s motivation in raising inflation tax revenue (seigniorage), investment decisions of the economic agents, inflation uncertainty affecting the behavior of money holders and optimal rate of inflation specified.
{"title":"Welfare Costs of Inflation in Nepal: An Empirical Analysis","authors":"T. Koirala","doi":"10.3126/nrber.v22i1.52801","DOIUrl":"https://doi.org/10.3126/nrber.v22i1.52801","url":null,"abstract":"This paper empirically examines the welfare losses arising from the currently rising inflation rate of Nepal using the method introduced into the literature by Bailey (1956) and the demand for real balance function put forward by Deaver (1970). Utilizing annual time series ranging from 1973 to 2009, the result obtained here supports the theoretical underpinning that the rise in inflation is leading to decrease in real balance and hence increase in welfare loss. It is also found that the rate of increases in welfare cost as a result of significant rises in inflation is sluggish. Further, the finding also leads one to conclude that the significant fraction of real income as welfare cost in the year 2010 corresponds to other factors affecting real balance rather than anticipated inflation. However, the evidence is consistent with the view that such cost may change under the relaxation of restrictions imposed corresponding to government’s motivation in raising inflation tax revenue (seigniorage), investment decisions of the economic agents, inflation uncertainty affecting the behavior of money holders and optimal rate of inflation specified.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129166685","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2010-11-20DOI: 10.3126/nrber.v22i1.52799
Bhubanesh Pant
FDI is much sought after in conflict-stricken countries such as Nepal as it can play a crucial role in the development process. However, the process of attracting and promoting FDI is complex, in particular as most developing countries, including Nepal, are competing for similar types of FDI. Although a number of efforts have been made in the past to boost FDI flows to the country, they have not had any striking impact. The country has not been able to draw on the potential technological and other contributions that FDI can make to the process of development. This underlines the need for effective policy interventions with a view to maximizing the benefits of FDI for Nepal's development in an open environment. Nepal also needs policy framework to enhance national and regional infrastructure, in areas such as transport, energy and communications services, and to generate domestic employment and skills transfer. The main policy conclusion that can be drawn from this paper is that the economic benefits of FDI are real, but they do not accrue automatically. To reap the maximum benefits, a healthy enabling environment for business is paramount, which encourages domestic as well as foreign investment, provides incentives for innovation and improvements of skills and contributes to a competitive investment climate.
{"title":"Enhancing FDI Flows to Nepal during the Period of Post-conflict Transition and Global Recession","authors":"Bhubanesh Pant","doi":"10.3126/nrber.v22i1.52799","DOIUrl":"https://doi.org/10.3126/nrber.v22i1.52799","url":null,"abstract":"FDI is much sought after in conflict-stricken countries such as Nepal as it can play a crucial role in the development process. However, the process of attracting and promoting FDI is complex, in particular as most developing countries, including Nepal, are competing for similar types of FDI. Although a number of efforts have been made in the past to boost FDI flows to the country, they have not had any striking impact. The country has not been able to draw on the potential technological and other contributions that FDI can make to the process of development. This underlines the need for effective policy interventions with a view to maximizing the benefits of FDI for Nepal's development in an open environment. Nepal also needs policy framework to enhance national and regional infrastructure, in areas such as transport, energy and communications services, and to generate domestic employment and skills transfer. The main policy conclusion that can be drawn from this paper is that the economic benefits of FDI are real, but they do not accrue automatically. To reap the maximum benefits, a healthy enabling environment for business is paramount, which encourages domestic as well as foreign investment, provides incentives for innovation and improvements of skills and contributes to a competitive investment climate.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133649753","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2009-12-26DOI: 10.3126/nrber.v21i1.52802
S. Acharya
Direction of causality between budget deficit and trade deficit, which is popularly known as Twin Deficit Hypothesis (TDH), has been tested in this paper covering the period 1964-2004. Stationarity, co-integration, and error correction tests have been performed as fundamental groundwork on real-term datasets. Datasets are found to be stationary at first difference. Long-run relationship (cointegration) among model variables is found at first difference. Long-run stability has been supported since short-run dynamics indicated converging pattern. Residual tests and conventional Granger Causality tests suggested trade deficit has been Granger Caused by the budget deficit. This initial gesticulation has further been reinforced by the vector autoregressive (VAR) modeling and intervention analysis (impulse response function and variance decomposition) also as it has reconfirmed unidirectional causality from budget deficit to trade deficit indicating need of a policy revisit regarding efficient public expenditure management, export-led growth and strategic capital formation with the help of revised fiscal, monetary and financial policies in the present globalization context.
{"title":"Verification of Causality through VAR and Intervention Analysis: Econometric Modeling on Budget Deficit and Trade Deficit in Nepal","authors":"S. Acharya","doi":"10.3126/nrber.v21i1.52802","DOIUrl":"https://doi.org/10.3126/nrber.v21i1.52802","url":null,"abstract":"Direction of causality between budget deficit and trade deficit, which is popularly known as Twin Deficit Hypothesis (TDH), has been tested in this paper covering the period 1964-2004. Stationarity, co-integration, and error correction tests have been performed as fundamental groundwork on real-term datasets. Datasets are found to be stationary at first difference. Long-run relationship (cointegration) among model variables is found at first difference. Long-run stability has been supported since short-run dynamics indicated converging pattern. Residual tests and conventional Granger Causality tests suggested trade deficit has been Granger Caused by the budget deficit. This initial gesticulation has further been reinforced by the vector autoregressive (VAR) modeling and intervention analysis (impulse response function and variance decomposition) also as it has reconfirmed unidirectional causality from budget deficit to trade deficit indicating need of a policy revisit regarding efficient public expenditure management, export-led growth and strategic capital formation with the help of revised fiscal, monetary and financial policies in the present globalization context.","PeriodicalId":372963,"journal":{"name":"NRB Economic Review","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116197488","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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