Economic Policy and Manufacturing Performance in Developing Countries

Economic Policy and Manufacturing Performance in Developing Countries

Edited by Oliver Morrissey and Michael Tribe

This book considers the impact of economic reforms on manufacturing performance and explores policy options for promoting manufacturing. Using country-specific case studies spanning Africa, South Asia, South East Asia and Latin America, the authors examine the evidence for and against both trade liberalisation and government support policy.

Chapter 6: Trade liberalisation and export diversification in Nepal

Kishor Sharma and Oliver Morrissey

Subjects: development studies, development economics, economics and finance, development economics, industrial economics

Extract

6. Trade liberalisation and export diversification in Nepal Kishor Sharma and Oliver Morrissey 1 INTRODUCTION Nepal commenced trade liberalisation in the mid-1980s, intending to arrest the deteriorating macroeconomic performance brought about by the import substitution (IS) policy of the previous three decades. The liberalisation programme included substantial cuts in tariffs and non-tariff barriers (NTBs), devaluation of the Nepalese rupee, deregulation of marketing of primary products and liberalisation of investment policies, including foreign investment and banking sector reform. Given the country’s landlocked position and open border with India, such that it was economically dependent on India, Nepal pursued only gradual liberalisation until after the Indian economy was substantially liberalised in the early 1990s. Consequently, the most important reforms were not implemented until 1992 and later. The purpose of this chapter is to examine the impact of liberalisation on export growth and diversification in Nepal, one of the least developed countries. Being landlocked, the goods that Nepal wants to import or export must pass through India or be flown in by air (usually too costly). Although a road link with China exists, extensive trade contacts are inhibited by the high cost and seasonal nature of road transport through the Himalayas. There is no restriction on the movement of people along the 800 mile long open border between Nepal and India. Like many landlocked countries, Nepal also experiences high transport costs in its trade with overseas countries. Trade and transit facilities, including port facilities offered by India, play a significant...

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