problems of nepalese economy

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Lecture notes for MA economics


  • Economics of Nepal: Class note on Poverty Alleviation and Employment (Eco: 539: MA 2nd year) Chakra Khadka, Department of Economics, Patan Multiple Campus.


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    Nepal faces a severe problem of economic stagnation. Difficult topography and the difficult natural environment are obstacles to development. The country has a high rate of population growth, extremely low agricultural productivity, and weak agricultural support. Natural resources,

    except water, are almost nonexistent, or their degree of exploitation is low. Rural economic activity, also at a very low level, is not changing. Some of the factors responsible for economic

    stagnation are beyond Nepal's control. The initial period of Nepal's planned development had infrastructure and institution-building as major objectives. Investments to establish the basic

    infrastructure is not fully reflected in growth terms. However, that policy can influence economic growth in many ways, and the task is to exploit as many as possible of these policies for the economic well-being of the Nepalese. (Sharma, Asian Survey, Vol. 26, No. 8, Aug., 1986), pp.


    Poverty measurement and analysis, inequality which kills social welfare, Monitoring and

    evaluation, development targets and costs, strengthening statistical systems, public spending,

    participation, governance, community-driven development, gender, environment, macroeconomic issues , trade policy, rural poverty, urban poverty, Social protection, health, nutrition and population, education, energy, transport, Water and sanitation, information and

    communication technology, utilization of mining is the other sides problems Nepalese economy (A sourcebook for poverty reduction strategies, World Bank, 2005).

    But, our country is experiencing a type of republic banana. Out of them principally there are

    three central problems in Nepalese economy which dominated national economy and they are the fundamental challenges for economic development:

    1. Poverty 2. Inequality

    3. Unemployment


    Subjective Measures of Poverty Subjective perceptions can be used to measure poverty. Such measures of poverty are based on

    questions to households about (a) their perceived situation, such as, Do you have enough? Do you consider your income to be very low, rather low, sufficient, rather high, or high? (b) A

    judgment about minimum standards and needs, such as, What is the minimum amount necessary for a family of two adults and three children to get by? or What is the minimum necessary for

    your family? or (c) poverty rankings in the community, such as Which groups are most vulnerable in the village? On the basis of the answers to these questions, poverty lines can be derived.

    Answers to the second group of questions could provide a line for different types of reference households, and answers to the first group of questions can be compared with actual income to infer the income level that households judge to be sufficient. This income level could then be used

    as the poverty line. Subjective measures can be used not only to assess the situation of a

  • Economics of Nepal: Class note on Poverty Alleviation and Employment (Eco: 539: MA 2nd year) Chakra Khadka, Department of Economics, Patan Multiple Campus.


    2 | P a g e

    particular household but also to set or inform the choice of poverty lines, equivalence scales, economies of scale, and regional cost-of-living differences. It can also be useful to compare

    subjective and self-reported measures of well-being to objective measures based on observed income and consumption data. Self-reported measures have important limitations, however. Subjective measures might reproduce existing discrimination or exclusion patterns if these patterns

    are perceived as normal in the society. This might be the case in discrimination against girls or other particular groups in society. Subjective assessments could then fail to capture discrimination,

    which should be addressed by public policy. More generally, the observed perceptions of poverty need not provide a good basis to establish priority public actions. This may be the case if

    policymakers have a different time horizon or a different understanding of the determinants of social welfare from the population providing the subjective measures of poverty.

    Methods of Setting Absolute Poverty Lines

    Different methods have been used in the literature to define absolute poverty lines (see Deaton 1997; Ravallion and Bidani 1994; Ravallion 1994; and Wodon 1997a). The choice of method

    can greatly affect poverty measures and who is considered poor. It is important to derive poverty lines that provide consistency in welfare measurement in space and time: two people with the

    same real consumption should be considered either poor or nonpoor. As discussed in Ravallion and Bidani (1994) and Wodon (1997a), the food-energy intake method defines the poverty line by finding the consumption expenditures or income level at which a persons typical food energy

    intake is just sufficient to meet a predetermined food-energy requirement. If applied to different regions within the same country, the underlying food consumption pattern of the population group

    consuming only the necessary nutrient amounts will vary. This method can thus yield differentials in poverty lines in excess of the cost-of-living differential facing the poor. An alternative is the cost

    of basic needs method, where an explicit bundle of foods typically consumed by the poor is first valued at local prices. Ordinal ranking of welfare crucial for the poverty profile is more

    important than cardinal ranking, with one household above and another below the line. For comparisons over time, however, the stability and consistency of the poverty line need to be ensured.

    The linkage (nexus) of production relation of poverty: Production is conducted within a network of discursive and non discursive relations technical, social,

    ecological cultural, political and academic whose understanding is distorted by subject specific views of reductionist science.

  • Economics of Nepal: Class note on Poverty Alleviation and Employment (Eco: 539: MA 2nd year) Chakra Khadka, Department of Economics, Patan Multiple Campus.


    3 | P a g e

    Figure1: The linkage (nexus) of production relation of poverty

    Poverty: the experience of many poor countries special reference to Nepal

    The "Join the Club" view: This view argues that poor economic policies, for example, infrastructure is poor, education is inadequate:

    Poor product quality: Quality improvement clearly affects economic well-being as much as does the quantity of goods.

    Composition and distribution of output: A more unequal distribution which appears to be occurring would have reverse effect.

    Per capita output: population is also growing rapidly per person standard of living may be constant or even declining.

    National income and the environment: Dirty air and water toxic waste, noise accompany production and the growth of GDP. The underground economy: Engage in illegal activities,

    corruption is rampant, (Parliament, regulator, legislator: [Linguistic corruption, [change in meaning to a language: Parmanda Jha], social, cultural, knowledge [human capital],

    foreign aid, foreign loan, social capital, trade and market [cartel], Institutional corruption,












  • Economics of Nepal: Class note on Poverty Alleviation and Employment (Eco: 539: MA 2nd year) Chakra Khadka, Department of Economics, Patan Multiple Campus.


    4 | P a g e

    [policies within an organization that break the law], Data corruption, [change to data in storage], Putrefaction [decomposition]).

    Political corruption, as the dysfunction of a political system or institution in which government officials, political officials or employees seek illegitimate personal gain

    through actions such as bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement.

    Basic environmental pollution: such as urban air pollution, media pollution, private information talent management regulation or brain management, innovation and technical change. Theoretical economic incentives are assumed to promote more innovation and cost

    reductions in pollution control, relative command and control. The magnitude of this effect is an empirical question.

    Corrupted forget moral principle and is a evil, malignance, sickness, of the economy which loss of innocence or purity.

    The "Missed the Boat" view: This view accepts the argument of the "Join the Club" views that, the

    market failure argument: In efficiency or absence of well organized commodity. Factor and capital markets is said to reduce considerably the ability to economic system to function effectively without some form of external interference.

    Commodity and factor markets are poorly organized Absence of well organized commodity Producers and consumers lack of necessary information; to act in a way conducive to

    efficient production and distribution

    Poorly developed in financial institutions The market is too said lead to a misallocation of present and future resources The resource mobilization and allocation argument: investment project must be chosen not

    only on the bas