Can Tourism Encourage Better Export Performance and Diversification in Nepal?

Entering and successfully surviving in export markets is a costly process for firms. Key steps for success include learning about the existence of foreign demand, determining the production costs of exportable goods, building a high-quality reputation, succeeding in product branding to reduce competitive pressures, constant upgrading of quality standards to better serve demanding international clients, and remaining competitive with other players in the global marketplace. Drawing on the findings of recent research (Reis and Varela 2013), this note argues that tourism can help alleviate some of these costs by providing a relatively inexpensive platform for cost discovery and acting as a low-cost in-house trade fair, accessible to all domestic producers. Combining product-level data on the world’s and Nepal’s exports (for goods that are both related and unrelated to tourism) with Nepalese data on tourist inflows and expenditures and macro indicators on relative prices results in a positive association between tourist inflows from given destinations and their expenditures with future merchandise exports of tourist-related products to those destinations. For goods previously unrelated to tourism, data reveal no connection between tourism flows and their future exports. The spillovers from tourism into merchandise export performance and diversification imply that there are gains to be had from cooperation between tourism and export promotion activities.