Nepal’s domestic material consumption—projection and causal impact of external financial inflows, services value-added, population, and economic growth

Abstract

Literature on material flow accounting has increasingly emphasized the need for an equitable resource allocation for least developed countries (LDCs) considering their future growth and the social outcomes (e.g., poverty alleviation) they intend to deliver. This paper aims to project Nepal’s domestic material consumption (DMC)—scale and structure for different economic growth scenarios. We also investigate the causal impact of exogenous factors: (1) external financial inflows, such as the remittance and official development assistance (ODA); (2) services value-added; (3) population; and (4) economic growth on DMC by material types (e.g. biomass, fossil fuels, non-metallic minerals, and metal ores). We use the R tools, ridge regression and its machine learning algorithms, the autoregressive-distributed lag approach, and the abovementioned variables’ time-series data between 1993 and 2017 as methodological and data tools. While Nepal’s absolute DMC will increase even in the low-growth scenario, we found that the biomass-based DMC prevalent in many LDCs, including Nepal, will be non-metallic minerals-based—a material consumption trait of existing middle-income and emerging economies. Despite this, the United Nations’ LDC graduation growth pathway, often assumed to deliver sustainable development objectives by policymakers in LDCs, including Nepal, is material intensive. The increase in the gross domestic product per capita, remittance, and ODA cause a rise in DMC because of their strong correlation and causal relationship. In these circumstances, we suggest policy measures that can leverage present consumption-oriented remittances as a source of investment in up-scaling small-scale modern renewable energy technologies across the residential sector, particularly in rural areas. We suggest this policy measure considering the future rise in non-metallic minerals and the challenges to reduce it because of the rising urbanization.