Foreign Trade Pattern of Nepal: Gravity Model Approach
AbstractThis study examines the overall trade pattern and flow of trade of Nepal by using pooled ordinary least square (OLS) along with one-year lag gross domestic product (GDP). It has also attempted to find the structural shift in the economy after economic liberalization in Nepal. In this study, gravity model is applied with comprehensive panel dataset for 29 years time period covering Nepal’s 94 trading partners. The results appear robust to specification, time period and trade determinants. Following a convention in this field, this study separates exports and imports instead of using total trade turnover. The empirical results are found consistent with the fundamental of gravity model as the study reveals positive coefficients for economic size and negative coefficients for distance. No significant structural break is found in the determinants of trade after economic liberalization. The results from simulation while comparing actual trade with predicted trade show that Nepal’s trade is not distorted by political decisions such as economical sanctions imposed by other countries. The results also suggest that trade with India in comparison to China is quite substantial. The results suggest that Nepal needs trade diversification in general and trade agreement with China in particular to reap the benefits from the trade.
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Bibliographic InfoArticle provided by Nepal Rastra Bank, Research Department in its journal NRB Economic Review.
Volume (Year): 26 (2014)
Issue (Month): 1 (April)
Gravity Model; Panel Data; Bilateral Trade; Export; Import; Trade Pattern; Distortion;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F19 - International Economics - - Trade - - - Other
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
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