Master program in Economic History STRUCTURAL TRANSFORMATION PROCES OF NEPALESE ECONOMY KRISHNA PRASAD POUDEL Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University Acknowledgement: This study is undertaken for master program of economic history, in economic history department, Lund University’s School of Economics and Management. In this context, I would like to express my sincere gratitude and heartily thanks to my thesis supervisor pro.Anders Nilsson for his invaluable guidance, inspiration and supervision. I would like to thanks special to my program director pro.Jonas Ljungberg for his valuable suggestion and inspiration. Thanks to staffs and colleagues the economic history department and program for the supports and sharing knowledge and experience. This study is dedicated to my beloved children, thanks them for being the great source of inspiration to conduct the study and thanks to my dear better-half Laxmi for patient sacrifice to provide the environment of the study. I would like to extend my special gratitude to my parents. Finally, I would like to thanks to all friends and best wishers who have supported directly and indirectly to me for this job. II Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University Table of Contents Titles page no. Title pages I Abstracts I Acknowledgement II Table of contents III List of Tables VI List of graph-figures VI Abbreviations VII Flag and Map of Nepal IX Chapter -1 Introduction 1 1.1 Back ground 1 1.2 A glance on the study area 2 1.3 Review of previous study 4 1.4 Statement of problem 16 1.5 Research questions 17 1.6 Theoretical framework 17 1.7 Hypothesis 24 1.8 Research methodology 25 1.8.1 Research design 25 1.8.2 Data sources 25 1.8.3 Analytical approach 25 1.8.4 Variables 25 1.8.5 Model specification 26 1.9 Delimitation of the study 27 1.10 Structure of this paper 27 Chapter -2 Comparative Analysis of Nepalese economy 28 2.1 Population 28 2.2 Population growth 29 2.3 Life expectancy 31 III Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University 2.4 GDP growth 32 2.5 Per capita growth 34 2.6 Gross capital formation 36 2.7 Exports of goods and services 37 2.8 Imports of goods and services 39 2.9Summery 40 Chapter -3 Macroeconomic performance of Nepal 41 3.1 Population features 42 3.1.1 Size of population 42 3.1.2 Population growth rate 43 3.1.3 Fertility rate 44 3.1.4 Life expectancy 44 3.2 Economic outputs 45 3.2.1 Gross domestic growth level 45 3.2.2 GDP growth rate 46 3.2.3 GDP per capita level 47 3.2.4 GDP per capita growth rate 47 3.3 Industrial performance 48 3.3.1 Sector wise production 48 3.3.2 Agriculture and forestry 49 3.3.3 Manufacturing industry 50 3.3.4 Construction industry 51 3.3.5 Service sectors 51 3.4 Structural pattern of Nepalese economy 52 3.4.1 Urbanization 53 3.4.2 Sector wise share in GDP 54 3.4.3Agriculture value added ratio 55 IV Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University 3.4.4Industrial value added ratio 56 3.4.5 Service sector value added ratio 56 3.4.6 Employment share 57 3.4.7 Sector wise productivity 58 3.4.8 Gross capital formation 60 3.4.8 Foreign trade 61 3.5 fiscal public expenditure 62 3.6 infrastructure 63 3.6.1 Electricity 63 3.6.2 Road 64 3.6.3 Telephone 65 3.7 summery 65 Chapter-4 Empirical analysis of the economic factors 68 4.1 variables 68 4.2 correlation matrix 69 4.3 effect on GDP per capita 69 4.4 impact on shift share of GDP 71 4.5 influence on employment shift share 71 4.6 effect on life expectancy 72 Chapter-5 Concluding remarks 75 References 79 Appendix 81 V Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University List of Tables Titles page no. 2.1 comparative figure of total population 29 2.2 average population growth rate 30 2.3 life expectancy 31 2.4 average GDP growth rate 32 2.5 average GDP per capita rate 35 2.6 Average gross capital formation ratio 36 2.7 average exports ratio 38 2.8 average imports ratio 39 3 comparative figures of Nepal between historical time points 41 List of Graph-figures Titles page no. 2.1 comparative population growth rates 30 2.2 comp. life expectancy 32 2.3 comp. GDP growth 34 2.4 comp. GDP per capita level 35 2.5 comp. gross capital formation ratio 37 2.6 comp. exports ratio 38 2.7 comp. imports ratio 39 3.1 total population of Nepal 43 3.2 population growth rate in Nepal 43 3.3 total fertility rate in Nepal 44 3.4 life expectancy in Nepal 44 3.5 GDP level 45 VI Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University 3.6 GDP growth rate 46 3.7 GDP per capita level 47 3.8 GDP per capita growth rate 48 3.9 sector wise GDP growth 49 3.10 Agriculture, hunting ……..growth 50 3.11 manufacturing growth 50 3.12 construction sector growth 51 3.13 services sector growth 52 3.14 ratio of rural and urban population 53 3.15 sector wise share in GDP 54 3.16 agriculture value added ratio 55 3.17 industrial value added ratio 56 3.18 services sector vale added ratio 57 3.19 employment share in non-agricultural sector 58 3.20 sector wise productivity 59 3.21 gross capital formation ratio 60 3.22 foreign trade ratios 61 3.23 fiscal public expenditure 62 3.24 ration of development and regular public expenditure 63 3.25 electric power consumption 64 3.26 road extension 64 3.27 telephone line extension 65 VII Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University Abbreviations ADB - Asian Development Bank BDG – Bangladesh CBS – Central Bureau of Statistics FDI – Foreign Direct Investment FY – Fiscal Years GDP – Gross Domestic Production GNI – Gross National Income ICOR – Investment Capital Output Ratio IMF – International Monetary Fund IS – Investment and Savings KM – Kilometers KWH – kilowatt/Hours LKA – Sri Lanka MW – Megawatts MYS – Malaysia R&D – Research and Development RIDA – Research Institutes of development Assistance TFP – Total Factor Productivity THA - Thailand UNDP – United Nation Development program US$ - Currency of United State America (US Dollars) VIII Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University National flag of Nepal Map of Nepal IX Structural Transformation Process of Nepalese Economy by Krishna Prasad Poudel, Lund University Structural Transformation Process of Nepalese Economy CHAPTER-1 Introduction 1.1. Background Economic development’s speed and process to the context of developing countries is a hot issue in global political and economic phenomena. There is big debate in terms of theory and strategies for the question of how to pick up them from poverty trap and economic backward conditions. There are various hypothesis and experience on about success and failure of historical development process for specially African and South Asian countries: which are still remained very least developed state, facing several kinds of socio economic crisis and problems. Nepal, a south Asian nation is an example of a least developed country; wandering in development process; suffering from sequential problem and crisis, despite internal efforts and heavy external supports for th economic enhancement. It has completed 10 five development planning terms; however, there are still more than half population dependants on traditional subsistence type agricultural sector. Average per capita is remained at very low level and economic growth rate is relatively slow. Now youth and educated manpower’s unemployment problem is being serious; which is a main reason for huge number of out migration for foreign job and study. Though, there was modern development process started only from 1950, after then also it is suffering from political instability, autocracy and arm conflict over the period. Nepal is, perhaps, newest republican nation in the world up to now. And new constitution still is in forming process. It means politically Nepal yet to settle. The economic version problems of Nepal are as: almost externally dependency, growing trade deficit, surpasses regular cost to capital cost of government budget. Inflation and corruption are as ordinary characteristic and high poverty and growing economic disparity are common problem as least developed countries such as in Nepal. In other word, there is a bunch of problem in Nepal; those could be categorized political, social, and economic and so on. There require scientific analysis of Nepalese economy. Therefore the main aim of the study is analyze the state of economic structure and causing factors, which are most influencing on that. It is an effort to explain the structural transformation process of Nepalese economy with light of theory of modern 1