Fig: Log of GDP per capita 2006 (constant 2000 US$) vs. log of exports per capita (current US$), Nepal
I was looking into the evolution of exports and output in Nepal and was trying to figure to how much drag does exports have on GDP. It seems that beginning 1991, increase in exports has definitely dragged GDP per capita in its direction. This stopped between 1995-1996, continued between 1998-2001, stopped between 2001-2003, and then…. Since 2001 even though exports per capita has declined, GDP per capita is increasing. Before 1991, exports did not have too strong effect on GDP. This shows that fluctuations in exports in Nepal does not substantially affect GDP per capita.
Does it mean that Nepal has no future in the exports sector? Well, it is difficult to grow at a rate of more than 5% just on the back of agricultural sector. Nepal has to find a way out to make a transition to export-based economy and home grown demand that is hinged on industrial production. This is the only way out to attain double-digit growth rate and some periods of growth acceleration.
This pushes one to think: so why is the export sector and the domestic demand for industrial output not increasing? Well, the main strongest constraints lie in poor infrastructure and increasing microeconomic risks (corruption, taxes, instability, property rights). More on these constraints on later posts.