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Indo-Nepal Trade Relation: The Phenomenon of Black Hole Effect

Author

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  • Mahesh K. Chaulagai, Ph.D.

    (Nepal Rastra Bank, Research Department)

Abstract

In the field of international trade, an economy is assumed to be reeling under the 'BLACK HOLE EFFECT' originating from another economy, if all the major variables of international trade, irrespective of in which country they belong to, solely act in the favor of the latter economy. The results based on the models suggest that all the economic variables used in the study, whether Nepalese or Indian, show more favor to Indian economy compared to Nepalese economy confirming that Nepal has been spiraling into the ‘BLACK HOLE EFFECT’ originated from the Indian economy. Such an effect tends to be an everlasting phenomenon until and unless a substantially enough counterbalancing force is applied to nullify it. The ‘BLACK HOLE EFFECT’ explains why Nepal has not been able to reap the benefit in trade with India that would have come from the ‘locomotive effect’ of the robust growth of the Indian economy.

Suggested Citation

  • Mahesh K. Chaulagai, Ph.D., 2014. "Indo-Nepal Trade Relation: The Phenomenon of Black Hole Effect," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 26(1), pages 44-57, April.
    • Handle: RePEc:nrb:journl:v:26:y:2014:i:1:p:44
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    References listed on IDEAS

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    1. Martinez-Zarzoso, Inmaculada & Nowak-Lehmann, Felicitas, 2003. "Augmented Gravity Model: An Empirical Application to Mercosur-European Union Trade Flows," Journal of Applied Economics, Universidad del CEMA, vol. 6(2), pages 1-26, November.
    2. Edward Christie, 2001. "Potential Trade in Southeast Europe: A Gravity Model Approach," wiiw Balkan Observatory Working Papers 11, The Vienna Institute for International Economic Studies, wiiw.
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    Cited by:

    1. Mahesh Kumar Chaulagai Ph.D., 2015. "Testing the J-Curve Hypothesis: A Case of Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 27(1), pages 17-36, April.
    2. Mahesh Kumar Chaulagai, Ph.D., 2015. "Testing the J-Curve Hypothesis: A Case of Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 27(1), pages 17-36, April.
    3. Mahesh Kumar Chaulagai Ph.D., 2015. "Devaluation and Testing the J-curve Hypothesis: A Case of Nepal," NRB Working Paper 27/2015, Nepal Rastra Bank, Research Department.

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    More about this item

    Keywords

    Foreign Trade; Gravity Model; Black Hole Effect;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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