Causes of Export Instability in Nepal

Satis Devkota, University of Minnesota - Morris


Heavy and sudden fluctuations in exports and price of exports creates the serious problems in balance of payments (BOP), national income, investment and then also creates the severe adverse impact on the overall growth of less developed countries. The severe consequences of export instability at the various front of the economy are ratchet effect on wages and manufactured products in the industrialized countries, especially during the period after boom, and the inflationary consequences on the least developed countries (LDCs) through the higher prices. In addition, all most all of the countries mostly failed to meet the minimum import requirements of target rate of growth and as a consequence, a persistent trade gap would generate, which reduce the economic growth. The will reduce investment and saving and finally deteriorate the situation of tax revenue.

In this context, most of the recent studies argued that instability in exports are related with commodity and geographic concentration index of exports, and gross domestic products (GDP) of the country. In addition to these, some other researchers argued that that export instability is also caused by growth rate of GDP. However, in this study we try to determine whether commodity and geographic concentration index of Nepalese exports and instability in agricultural and non-agricultural sector GDP cause export instability in Nepal by using the appropriate methodology as mentioned in this study.