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Linkages between Sectoral Output Growth and Financial Development in Nepal

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  • Prof. Frank Westermann Ph.D.

    ()
    (University of Osnabrueck)

Abstract

A feature of the recent period of output growth in Nepal is that growth has been uneven across sectors. While the services sector has been expanding, the agricultural and manufacturing sectors have growing much more slowly. In this paper we attempt to explain this fact by investigating the linkages between financial development and sectoral output growth in a vector-autoregression (VAR) analysis. We find that the services sector reacts strongly to increases in domestic credit, while agriculture and manufacturing are largely unaffected. We interpret this finding in the context of a two sector-growth model, by Schneider and Tornell (2004), where credit constraints and the access to international capital markets play a central role. We also discuss the importance of our findings for the goal of poverty alleviation.

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File URL: http://www.nrb.org.np/ecorev/pdffiles/vol24-2_art2.pdf
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Bibliographic Info

Article provided by Nepal Rastra Bank, Research Department in its journal NRB Economic Review.

Volume (Year): 24 (2012)
Issue (Month): 2 (October)
Pages: 15-30

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Handle: RePEc:nrb:journl:v:24:y:2012:i:2:p:15-30

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Web page: http://www.nrb.org.np/ecorev/
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Related research

Keywords: Financial development; growth; agriculture; poverty;

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References

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  1. Udaya R. Wagle, 2010. "Economic inequality in Nepal: Patterns and changes during the late 1990s and early 2000s," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(5), pages 573-590.
  2. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2003. "Liberalization, Growth, and Financial Crises: Lessons from Mexico and the Developing World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 1-112.
  3. Aaron Tornell & Frank Westermann, 2005. "Boom-Bust Cycles and Financial Liberalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201593, January.
  4. Demetriades, Panicos O & Luintel, Kul B, 1996. "Banking Sector Policies and Financial Development in Nepal," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 355-72, May.
  5. Barry Eichengreen & Poonam Gupta, 2009. "The Two Waves of Service-Sector Growth," Working Papers id:1934, eSocialSciences.
  6. Ganesh Kumar Shrestha, 2004. "Financial Sector Reforms in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 16, pages 75-90, April.
  7. Shalik Ram Sharma, 2003. "Microfinance Against Poverty : The Nepalese Scenario," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 15, pages 166-190, April.
  8. Min B. SHRESTHA & Khorshed CHOWDHURY, 2007. "Impact of Financial Liberalization on Welfare: Evidence from Nepal," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
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