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Nepal's Trade Flows: Evidence from Gravity Model

Author

Listed:
  • Surya Bahadur Thapa

    () (Tribhuvan University)

Abstract

This study is carried out to estimate the trade potentiality of Nepal using gravity model. The gravity model simply explains that the volume of trade between pairs of countries is a positive function of the size of two countries and negative function of the distance between them. The study has used coefficients of the model to predict Nepal’s foreign trade for the year 2009. The trade potentiality is calculated with the help of the ratio of predicted trade to actual trade. The result is fluctuating: some countries crossed the limits whereas some countries are still below the potential trade. The study has used gravity model to evaluate the determinants of foreign trade of Nepal using secondary data including 19 major trade partners. The estimated result of Nepal’s trade potentiality shows that Nepal has exceeded trade potentiality with her 10 trading partners, including giant neighbors India and China, and there remains trade potentiality with 9 trade partners including another neighbor Bangladesh.

Suggested Citation

  • Surya Bahadur Thapa, 2012. "Nepal's Trade Flows: Evidence from Gravity Model," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 24(1), pages 16-27, April.
  • Handle: RePEc:nrb:journl:v:24:y:2012:i:1:p:16-27
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    File URL: http://www.nrb.org.np/ecorev/pdffiles/vol24-1_art2.pdf
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    References listed on IDEAS

    as
    1. Hassan, M. Kabir, 2001. "Is SAARC a viable economic block? evidence from gravity model," Journal of Asian Economics, Elsevier, vol. 12(2), pages 263-290.
    2. Chan-Hyun Sohn, 2005. "Does The Gravity Model Explain South Korea'S Trade Flows?," The Japanese Economic Review, Japanese Economic Association, vol. 56(4), pages 417-430.
    3. World Bank, 2011. "World Development Indicators 2011," World Bank Publications, The World Bank, number 2315.
    4. Sanjaya Acharya, 2010. "Import Liberalisation and Revenue Replacement: Impacts in a Small Asian Developing Economy," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 22(3), pages 417-442, July.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Nimesh Salike & Benli Lu, 2015. "An Examination of Nepal’s Export Choice based on Revealed Comparative Advantage," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 27(1), pages 75-89, April.

    More about this item

    Keywords

    Nepal; GDP; Distance; Gravity Model; Determinants of Trade; Trade Potentiality;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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