Mennonite
Central
Committee

Globalization's impact on Nepal

By Chris Gingrich

Gingrich is an economics professor at Eastern Mennonite University, Harrisonburg, Va. From July 2001 to June 2003 he served with MCC in the Rural Development Department of United Mission to Nepal. His reflection here refers to a presentation given at the South Asia conference.

Gingrich has also written a paper for MCC, "The Impact of Globalization on Low-Income Countries: What is the Evidence?" (PDF)

Nepal's experience with globalization and market reforms has been mixed, reports a leading economist in Kathmandu. In his presentation "Market-Oriented Reforms, Growth, Poverty and Equity in Nepal," Tribhuvan University economics professor Binod K. Karmacharya claims that poverty rates in Nepal changed very little during its current 12-year experiment with market liberalization. Poverty in rural Nepal appears to be slightly increasing, while the opposite is true in urban areas. Economic growth shows a similar pattern.

Dr. Karmacharya describes the various policy reforms implemented in Nepal since 1990. These reforms include a reduction in import tariffs, easier access to foreign currencies, simplified foreign investment procedures, reduced agricultural subsidies and relaxed regulations for financial institutions. He emphasizes that the specific impact of these reforms on poverty and growth is difficult to determine, due to other important factors. Weather conditions and markets for seeds, fertilizers and credit affect agricultural production, and rapid population growth can offset production increases.

Dr. Karmacharya notes how Nepal's experience with globalization differs from other South Asian countries. Long before launching market reforms, Nepal experienced "de facto" globalization due to the 1,000-kilometer open border with India. Because goods and services flow freely across the border, Nepal's economy is integrated with India's economy. The border prevents Nepal from conducting trade policies independent from India. Nepal's integration with the rest of the world depends on India's level of integration. Neither can Nepal protect its own infant industries. In addition, because India surrounds Nepal on its southern, western and eastern boarders (with China to the north), high transportation costs can make Nepali-made goods uncompetitive on world markets.

Rather than rely completely on globalization to alleviate poverty, Dr. Karmacharya recommends that Nepal also fix various internal economic problems. Rigid rules and regulations plague Nepal's labor markets and discourage companies from hiring new workers. Markets for improved agricultural inputs remain undeveloped. Domestic investment in Nepal is the lowest in South Asia. Perhaps most important, Nepal will not experience reduced poverty until the current government-Maoist conflict is resolved.