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Some aspects of landlocked Nepal's trade relations with India, 1960/61-1969/70

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Title: Some aspects of landlocked Nepal's trade relations with India, 1960/61-1969/70
Authors: Shrestha, Omkar L (Omkar Lal)
Keywords: Nepal
Issue Date: 1975
Abstract: The present study is an econometric investigation into Nepal's foreign sector. Its foreign trade presents Nepal with a unique problem. While the small size of the country impels Nepal to resort to international trade, its landlocked topography severely limits its option to trade with countries other than India. Trade with India thus presents itself to Nepal as a combined situation of monopoly and monopsony. In the present study, we have (a) constructed a structural model of the Nepalese foreign sector and estimated its parameters by using multivariate regression techniques, (b) projected Nepal's imports and exports for five years and examined the required exchange rate depreciation to rectify the projected trade deficits, (c) studied the effects on Indo-Nepal trade in the event of removal of trade treaties between the two nations, and finally, (d) suggested alternative trade policies. Lack of adequate data and the primitive state of the available data on Nepal have been the main reasons for the estimation of the functions in the model in highly aggregate form. Export demand and export supply functions have been disaggregated on the basis of end-use of the commodities. No disaggregation has been achieved in the import function. Single equation least-squares regression techniques have been used in the estimation of the model with annual data for 1960/61 to 1969/70. The usual objections to this method become less significant in this case because of the fact that a large number of the independent variables in the model are exogenous. The model consists of five structural equations and four identities. When data permit the construction of a model for the entire economy, the foreign trade model can be linked to a model of the domestic sector to take into account the inter-relationships and feedback between the two sectors. Contrary to what has been found in other studies on foreign trade, the relative price variable in our model has been consistently significant in import demand and export demand functions. Elasticity of Nepal's import demand has been found to be greater than unity with respect to income as well as to its import price. This suggests that decision makers can make use of expenditure-reducing and also expenditure-switching measures in formulating trade policies aimed to remedy the trade deficits. Nepal's export demand has been found to be relatively elastic with respect to the ratio of India's national income to its agricultural income; but with respect to its export price, the elasticity was below unity. The income elasticity of Nepal's export demand indicates susceptibility of its export earnings to India's agricultural condition. The low price elasticity of export demand gives scope for the Nepalese Government to impose export levies without their possible adverse effects on its export earnings. Nepal's elasticity of export supply with respect to Nepal's income was found to be substantially below unity while its elasticity with respect to its price was found to be greater than unity. Elasticities approach has been used in computing the required exchange rate depreciation to rectify the projected trade deficits of Nepal. The required rates ranged from 18% to about 28%. It has been found that in the event of mutual tariff imposition in each other's trade, in a static sense, Nepal's trade diversion losses in its trade with India are likely to be greater than the trade creations emanating from its free trade with India. Finally, we have examined the model in its performance in explaining the observed pattern and the accuracy of the structural estimates. The plots of each variable revealed the calculated and observed values of each variable moving convergently.
Description: Typescript.
Thesis (Ph. D.)--University of Hawaii at Manoa, 1975.
Bibliography: leaves [142]-146.
ix, 146 leaves ill
Rights: All UHM dissertations and theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission from the copyright owner.
Appears in Collections:Ph.D. - Economics

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