Reflections of the trade-led-growth hypothesis on the Nepalese economy
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Abstract
This study examines the effect of foreign trade on Nepal's economic growth. It comprises export, import, and total foreign trade volume as economic growth determinants. It is based on secondary data collected from numerous economic surveys of Nepal encompassing 34 data points from fiscal years 1998/99 to 2021/22. To examine the short-run and long-run relationship between export, import, and total foreign trade volume in promoting Nepal's economic growth, descriptive and exploratory research designs are utilized. EViews 12 is used to analyze the data. Graphs and some statistical tools of econometrics, like correlation analysis, Descriptive statistics, unit root testing, ARDL Bound testing approach, heteroskedasticity, serial correlation LM test, CUSUM and CUSUM square, and error correction model, are used. There is a high degree of positive correlation found between foreign trade and economic growth. The GDP, import, export, and total trade volume have long-run co-integration. In the long run, no variable has an individually statistically significant impact on determining the dependent (GDP) variable. Still, in the short run, a one percent increase in foreign trade leads to a 0.845 percent increase in the GDP of Nepal. Import and economic growth have negative relations. A one percent increase in imports decreased the GDP by 0.686 percent in Nepal. Foreign trade explains 94.92 percent of the variation in Nepal's GDP in the long run, but only 39.97 percent in the short run. Only a small number of data, countries, variables, methods, and instruments are used. Therefore, further inquiry is required.
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