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Does gravity matter? Evidence from Nepal’s trade pattern

Author

Listed:
  • Jinhwan Oh

    (Graduate School of International Studies, Ewha Womans University, Republic of Korea)

  • Laxmi Prasad Prasai

    (Graduate School of International Relations, International University of Japan, Japan)

Abstract

In the midst of globalization, trade of goods and services has been increasingly important. As a World Trade Organization member, Nepal is no exception. Using the gravity model, this study examines Nepal’s trade pattern by analysing a panel dataset of the country’s bilateral trade flows with 94 countries for 29 years (1981–2009). The empirical results for the entire dataset followed the general prediction of the gravity model (positive coefficients for economic size and negative coefficients for distance). When the data was examined by dividing it into two based on Nepal’s economic liberalization in 1991, no significant structural breaks were found. However, when the dataset was re-examined by comparing the actual trade flows with the estimated ones, it was found that Nepal’s trade flows with China, Japan and ASEAN members were undermined, whereas its trade with India was excessively concentrated. It is therefore suggested that Nepal diversify its trading activities and reduce its trade dependency on India.

Suggested Citation

  • Jinhwan Oh & Laxmi Prasad Prasai, 2012. "Does gravity matter? Evidence from Nepal’s trade pattern," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 15(2), pages 161-175, June.
    • Handle: RePEc:sae:intare:v:15:y:2012:i:2:p:161-175
    DOI: 10.1177/2233865912447086
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    References listed on IDEAS

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    Cited by:

    1. Paudel, Ramesh C. & Burke, Paul J., 2015. "Exchange rate policy and export performance in a landlocked developing country: The case of Nepal," Journal of Asian Economics, Elsevier, vol. 38(C), pages 55-63.
    2. Julian Frede & Hakan Yetkiner, 2017. "The regional trade dynamics of Turkey: a panel data gravity model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(6), pages 633-648, August.

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