The Determinants of Nepal’s Trade with India: A Quantitative Analysis

  • Surya B. Thapa Central Department of Education, Tribhuvan University, Kathmandu, Nepal
Keywords: GDP, trade/GDR ratio, population, gravity model, determinants of trade, trade intensity index

Abstract

This study is carried out to estimate the determinants of Nepal’s trade with India. The Trade Intensity Index and gravity model without distance are used to estimate the determinants. Time series data is collected from 1986 to 2006 covering a period of 22 years. In analyzing gravity model, percentage change in trade is taken as a dependent variable and among independent variables percentage change in Nepal’s gross domestic product, Nepal’s population and openness index are included. Data on these variables have been collected from the various issues of World Development Reports/Indicators published by the World Bank and Direction of Trade Statistics published by International Monetary Fund and is analyzed with SPSS 16. The result of Trade Intensity Index shows that the values of import and export intensity index of Nepal are greater than one for all years. It indicates that Nepal’s trade with India both
in terms of exports and imports has exceeded potential trade. Likewise the results of the gravity model show mixed results: for the model the coefficients of percent change in Nepal’s gross domestic product and openness index are positive and significant. However, the coefficient of Nepal’s population appears negative. Based on the empirical results, it can be concluded that Nepal should follow trade diversification policy on the one hand and on the other it should increase its production and consumption capacity by increasing its rate of gross domestic product along with trade liberalization policy.

Published
2012-12-10
How to Cite
Thapa, S. B. (2012). The Determinants of Nepal’s Trade with India: A Quantitative Analysis. The Journal of University Grants Commission, 1(1), 92-105. Retrieved from http://jugc.edu.np/index.php/JUGC/article/view/114