Economics · Chapter 10
Study notes aligned to the official NEB syllabus.
Foreign trade and foreign employment are two areas in which Nepal's economy is deeply connected with the outside world. Nepal imports far more than it exports, and it depends heavily on the remittances sent home by workers abroad. This chapter examines the features, composition, direction and problems of Nepalese foreign trade, the role of the WTO and SAFTA, and the importance and drawbacks of foreign employment and remittance.
Nepalese foreign trade has several distinctive features. The most striking is a large and growing trade deficit, because the value of imports is many times the value of exports. Trade is heavily concentrated with India, which accounts for the largest share of both exports and imports, so Nepal's trade is not well diversified. Exports consist mainly of primary and low value goods and a few manufactured items, while imports consist of petroleum products, machinery, vehicles, industrial raw materials, gold and consumer goods. Being a landlocked country, Nepal depends on transit through India for its overseas trade, which raises transport cost and time. The volume of trade is small in relation to the size of neighbouring economies.
The composition of trade refers to the kinds of goods exported and imported. Nepal's main exports include woollen carpets, readymade garments, pashmina, cardamom, tea, jute goods, herbs, handicrafts and some manufactured products such as palm oil and iron and steel items. Its main imports include petroleum products, vehicles and parts, machinery and equipment, gold, chemical fertiliser, medicine and a wide range of consumer goods. Since imports are dominated by essential and capital goods and exports by a narrow range of primary and light manufactures, the composition works against the balance of trade.
The direction of trade refers to the countries with which Nepal trades. India is by far the largest trading partner, followed by China and then countries such as the United States, member states of the European Union, and the countries of the Gulf. The heavy dependence on a single neighbour makes Nepal's trade vulnerable to disturbances such as border blockades.