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Linkages between Sectoral Output Growth and Financial Development in Nepal

  • Prof. Frank Westermann Ph.D.

    ()

    (University of Osnabrueck)

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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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
Contact details of provider: Web page: http://www.nrb.org.np/ecorev/
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  1. Shalik Ram Sharma, 2003. "Microfinance Against Poverty : The Nepalese Scenario," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 15, pages 166-190, April.
  2. Barry Eichengreen & Poonam Gupta, 2009. "The Two Waves of Service-Sector Growth," Development Economics Working Papers 22914, East Asian Bureau of Economic Research.
  3. Aaron Tornell & Frank Westermann (ed.), 2005. "Boom-Bust Cycles and Financial Liberalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 9780262201599, June.
  4. Bishnu Prasad Gautam Ph. D., 2008. "Economic Impact of Tourism Finance in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 20, pages 62-73, April.
  5. Khem Raj Bhetuwal Ph. D., 2007. "Financial Liberalization and Financial Development in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 19, pages 23-41, April.
  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. 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.
  8. 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.
  9. 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.
  10. 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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