ISSN No: 1608-6627
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Articles for Volume 26-2

Bank Credit and Economic Growth in Nepal: An Empirical Analysis
[Neelam Timsina]

This study examines the impact of commercial bank credit to the private sector on the economic growth in Nepal from supply side perspectives. The study has applied Johansen co-integration approach and Error Correction Model using the time series data for the period of 1975-2014. The empirical results show that bank credit to the private sector has positive effects on the economic growth in Nepal only in the long run. Nevertheless, in the short run, it has been observed a feedback effect from economic growth to private sector credit. More specifically, the growth in real private sector credit by 1 percentage point contributes to an increase in real gross domestic product by 0.40 percentage point in the long run. The empirical results imply that, policy makers should focus on long run policies to promote economic growth development of modern banking sector, efficient financial market and infrastructure so as to increase the private sector credit which is instrumental to promote growth in the long run.

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Determinants of Stock Market Performance in Nepal
[Prakash Kumar Shrestha, Ph.D.* Biggyan Raj Subedi** ]

This paper empirically examines the determinants of the stock market performance in Nepal using monthly data for the period of mid-August 2000 to mid-July 2014. The impact of major changes in politics and Nepal Rastra Banks policy on lending against share collateral has also been assessed. Empirical results obtained from OLS estimations of behavioural equations reveal that the performance of stock market is found to respond positively to inflation and broad money growth, and negatively to interest rate. This suggests that, in Nepal, share investors seem to take equity as a hedge against inflation and consider stock as an alternative financial instrument. Further, availability of liquidity and the low interest rates stimulate the performance of the Nepalese stock market. More importantly, stock market has been found to respond significantly to changes in political environment and the policy of Nepal Rastra Bank. These findings help to design policies to stabilize or stimulate the share market in Nepal.

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Structural Change and Per Capita Income in Nepal: Empirical Evidences
[Guna Raj Bhatta]

This paper empirically examines Nepalese economic structure by applying OLS technique on the annual series of sectoral growth, population and capital related variables ranging from 1975 2012. The estimates obtained with due consideration of stationarity of the series including HP filter revealed that industrial sector is significant to increase per capita income compared to the agriculture and service sectors in Nepal. Moreover, health as indicated by life expectancy and population at working age are found to be substantial to increase the income but, education and capital formation are found insignificant. It is inferred that employment matters for raising per capita income, requiring employment-led growth rather mere growth of economic sub-sectors. Hence, it is needed to have balanced contribution of economic sub-sectors and their employment share to national economy along with healthy workforce to raise the per capita income.

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Determinants of Inflation in Nepal: An Empirical Assessment
[Shoora B. Paudyal Ph.D.]

This paper examines short term and long term effects of the macroeconomic variables on the inflation in Nepal during 1975-2011. The variables considered are budget deficits, Indian prices, broad money supply, exchange rate and real GDP. The regression results from Wickens-Breusch Single Equation Error Correction model suggest that all variables considered are significant in long run implying that these variables are the determinants of inflation in Nepal. However, only budget deficit, money supply and Indian prices cause inflation in the short run. The results are consistent with monetarists hypothesis of money matters and inflationary gap theory of Keynesian as well as supply constraints approach to inflation.

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Relevance of Keynesianism in Nepal: An Empirical Analysis
[Hom Nath Gaire]

In this paper, the relevance of Keynesian postulates has been examined in the Nepalese context for the period 1975-2012 using annual time series data. The empirical results from the Johansen co-integration tests clearly show that there is long run equilibrium relationship between government expenditure and real GDP, private consumption and gross fixed capital formation. Likewise, Granger Causality test confirms that there is bilateral causal relationship between government expenditure and gross fixed capital formation in Nepal. However, no causal relationship is observed between government expenditure and real GDP and private consumption. Thus, it is confirmed by this study that the Keynesian postulates are relevant for capital formation rather than for increasing real GDP growth and private consumption in Nepal.

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