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Characteristics of India's Informal and Formal Trading with Nepal: A Comparative Analysis


  • Nisha Taneja

    (ICRIER, Core 6A, 4th floor, India Habitat Centre, Lodhi Road, New Delhi-110003, India)

  • Sanjib Pohit

    (National Council of Applied Economic Research, Parisila Bhawan, 11 IP Estate, New Delhi-110002, India)


The large and vibrant informal trade between India and Nepal continues to thrive despite trade liberalization in the two countries. This calls for an in-depth analysis of India's informal trade with Nepal. The analysis, carried out on the basis of an extensive survey conducted in India and Nepal reveals that informal traders in India and Nepal have developed efficient mechanism for contract enforcement, information flows, risk sharing and risk mitigation. Further, informal traders prefer to trade through the informal channel because the transaction costs of trading in the informal channel are significantly lower implying that informal trade takes due to the inefficient institutional set up in the formal channel.

Suggested Citation

  • Nisha Taneja & Sanjib Pohit, 2002. "Characteristics of India's Informal and Formal Trading with Nepal: A Comparative Analysis," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 37(1), pages 69-89, January.
  • Handle: RePEc:dse:indecr:v:37:y:2002:i:1:p:69-89

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    Cited by:

    1. United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West (ed.), 2012. "Regional Cooperation for Inclusive and Sustainable Development: South and South-West Asia Development Report 2012-2013," SSWA Books and Research Reports, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West Asia Office, number brr4.

    More about this item


    Trade; Transaction cost; Institutional Arrangements;

    JEL classification:

    • F19 - International Economics - - Trade - - - Other
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements


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