The Role of External Debt, Export Trade, Remittance, and Labour Force in the Economic Growth of Nepal: is Nepal Heading Towards Dutch Disease?

Abstract

This paper, using the most recent data and updated time series analysis technique in annual data for the period of 1990-2019, examines the role of external debt, remittances, exports, and labour force in the economic growth of Nepal. Despite being a unique country with a high demographic dividend, endowed with natural resources, and fast-growing big economiesChina and India-in the neighbour, Nepal has been unable to accelerate its economic growth. The results show that external debt and remittances have contributed negatively to the economic growth of Nepal indicating a symptom of Dutch Disease in the Nepalese economy, especially caused by the remittances inflows in the recent decades. The results also suggest that the debt collected after 2014 has indicated a better performance but still the sign is negative and statistically not significant. The results for exports and labour force indicate that governments of Nepal need to focus more on export performance employing the labour force in the country. There is enough room to improve creating more domestic employment to boost the exports for achieving a better rate of economic growth in the country. The proper utilization of debt and remittances inflows should be an immediate concern of the policymakers in the country..