ISSN No: 1608-6627
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Articles for Volume 17

Public Service Delivery Mechanism and Rural Poverty in Nepal
[Prof. Dr. Parashar Koirala]

Nepal is a least developed country with a per capita income of $240. The population living below poverty line is 44.6%, in which the rural poverty is over and above the urban in percentage terms. In total, about 10 percent of the population live in the urban areas where the population living below the poverty line is 17.8 percent; in the remaining 90 percent residing in the rural areas, 46.6 percent of them are living below the poverty line. With regard to rural poverty, the delivery mechanism developed in rural and urban areas consists of Village Development Committee (VDC), Municipality, and District Development Committee (DDC). There is a division of work among the VDC, Municipality, DDC and the line ministries. The VDC is the lowest institution at the grass root level, which send development plan for necessary funding to DDC and the DDC to the Ministry of Local Development and to the National Planning Commission. This mechanism has been in operation for the last forty years. There has been some progress in development works such as in education, electricity, telephone, road and possession of radio. But the report and data show that the level of poverty has been increasing since FY 1976/77. To find out the impact of development activities on per capita income, a regression coefficient of each development activity has been estimated through the method of least squares. Through test statistics, it is demonstrated that there is a significant difference of the impact of independent variables (electricity, literacy, road, radio and telephone) on the dependent variable (per capita income).

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Deficit Financing: Implications and Management
[Dr. Govinda Bahadur Thapa]

Developing countries usually mobilize part of their resources by borrowing from internal as well as external sources to finance their development activities. These sources gradually build up the debt stock of the country. Such debt stock demands regular debt servicing, that is, principal and interest payment, which consumes scarce resources that can be used for financing development. Therefore, excessive deficits and heavy borrowing to finance that deficit drain out the resources of the developing countries. Liquidity is also involved while borrowing and servicing. Thus, both of these transactions are conducted in such a way that the country concerned always finds itself in a comfortable position with regard to the liquidity, which is known as the debt management.

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An Examination of Central Bank Independence and Power
[Ravindra Prasad Pandey]

The argument which stresses the role of an independent central bank in preserving the soundness of money by ensuring a low rate of inflation tends to be both narrow and inconsistent. However, much of the debate for independent central banks derives from empirical evidence rather than from theoretical propositions, and if low rates of inflation could be clearly demonstrated to lead to higher rates of economic growth and/or more stable rates of growth, it would provide an argument with which it would be difficult to disagree with the proposition that the market economy operates more efficiently at low rates of inflation. As macroeconomic policy has been developing at a fast pace in recent years, governments have increasingly moved in the direction of restricting themselves to the use of one instrument of policy. It is in this context that the role of the central bank has been accorded so much focus along with its governance. At the same time, there has been a significant move to increase the independence and power of central banks. This would appear to be placing macroeconomic policy almost entirely in the hands of central banks. Yet, monetary policy seems only likely to be effective when central banks behave in the way that financial markets expect and wish them to do so. Moreover, governments seem to have little control over the operation of financial markets. This appears to remove macroeconomic policy entirely not just from short-sighted politicians but from any institutions which might be expected to have the best interests of the entire economy at heart.

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The Nepalese Stock Market: Efficient and Calendar Anomalies
[Dr. Fatta Bahadur K.C. and Nayan Krishna Joshi]

After describing the various forms of efficiency and calendar anomalies observed in many developed and emerging markets according to the existing literature, the present study examines this phenomenon empirically in the Nepalese stock market for daily data of Nepal Stock Exchange Index from February 1, 1995 to December 31, 2004 covering approximately ten years. Using regression model with dummies, we find persistent evidence of day-of-the-week anomaly but disappearing holiday effect, turn-of-the-month effect and time-of-the-month effect. We also document no evidence of month-of-the-year anomaly and half-month effect. Our result for the month-of-the-year anomaly is consistent to the finding observed for the Jordanian stock market and that for the day-of-the-week anomaly to the Greek stock market .In addition, our finding regarding half-month effect is consistent with the US market. For the rest, we find inconsistent results with that in the international markets. Our results indicate that the Nepalese stock market is not efficient in weak form with regard to the day-of-the-week anomaly but weakly efficient with respect to the other anomalies.

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Nepal's Trade Sector: Review, Repercussions and Recommendations
[Dr. Bhubanesh Pant]

That the trade sector plays a highly instrumental role in attaining high and sustainable economic growth is indisputable. However, Nepals policy regime has not been very effective in improving trade competitiveness. Although policy measures have been announced both to identify new exportable products and encourage diversification of export markets, these have hardly been executed. Weak infrastructure, poor human resources, absence of quality standardization of exports, dearth of a strong legal framework and frequent policy reversals, among others, have restricted the country in improving its international competitiveness. Still, owing to the emerging trend of a competitive and market-oriented global economy, these issues need to be properly addressed. With reference to regional and multilateral agreement, the country should undertake a two-pronged strategy according priority to multilateral trade negotiations under the World Trade Organization as well as to strive for effective and meaningful regional trading arrangements such as the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation Free Trade Area (BIMST-EC FTA) which it is currently pursuing. Other measures suggested by this paper for boosting trade competitiveness include, among others, technological upgrading, investment in infrastructure, appropriate legal framework compatible with regional and multilateral agreements, new trade policy, setting up of export processing zones and credible policy.

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The Impact of Fiscal Deficit on Long-term Nominal Interest Rate in Nepal
[Rajendra Pandit]

Growth of debt stock, changes in the debt composition, ownership structure of government debt and movement of interest rate on debt have been observed since the very beginning in Nepal. Public debt issues have been more and more market oriented and secondary market activities for short-term securities have expanded in recent years. Presently, the amount of debt service payment which exerts pressure on government budget constitutes more than one fourth of the total government expenditure. The theoretical prediction about the relationship between interest rate and government debt is still a matter of controversy. Empirical evidence of other countries on the relationship between interest rate and public debt has become inconclusive. This paper examines the relationship between long-term nominal interest rate and budget deficit variables in Nepal. The study finds the evidence that there exists positive but insignificant relationship between long-term nominal interest rate of government securities and budget deficit variables.

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