Trade Liberalization and Manufacturing Productivity in Nepal: Examining a Small Open Developing Economy

Abstract

This study examines the trade-productivity nexus using manufacturing industry data during Nepal’s rapid trade reform period that intensified from the early 1990s. Productivity improvements from trade liberalization only accrue to large industries and the highly efficient industries along the productivity quantiles. Methodologically, the results indicate that one should examine distributional variations as well as conditional mean variations to capture all relevant industry productivity responses to trade policy changes. These results imply that there is ample opportunity for Nepal to continue reaping benefits from the trade liberalization process as more industries grow in size and become more efficient over time.