An assessment of domestic credit to the private sector and export performance of Nepali: A gravity modelling approach.
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Department of Economics
Abstract
The trade deficit in Nepal has reached an alarming levels because of the ongoing and
growing mismatch between imports and exports. Nepal’s trade deficits are the major
concern of Nepal’s economy at present. Despite numerous policy efforts, export
performance has fallen short of stakeholders' and policymakers' expectations. In
recent years, attention has increased to the ability of the banking sector's credit to the
private sector (loanable fund) to increase export performance by bridging the gap
between a company's productivity and export status.
The objective of this thesis is to document the analysis of domestic credit to the
private sector and export performance of Nepal and to examine the association of
Domestic credit to the private sector and export performance in Nepal.
The gravity model method is used in this study to investigate the relationship between
domestic bank credit to the private sector and Nepal's export performance employing
data from 1996 to 2019.
The study found a significant and favourable association between the domestic credit
to the private sector and export performance. The study's conclusions showed that
domestic credit to the private sector was statistically significant at a one per cent
significance level and had a positive impact on export performance. In a similar
manner to this, gravity variables, such as distance and GDP of the trading partner,
have a significant relationship with export performance, but even at a 10 per cent
level of significance, the population of the trading partner countries is not significant.
Additionally, the estimated coefficient for governance is 0.522, indicating a
statistically significant relationship between governance and export performance at a
one per cent.
Financial development improves trade flows by reducing the fictitious gap between
productivity and exports, domestic credit should be invested in the manufacturing
sector rather than consumption. The Nepali government should support industrial
development and the expansion of industries that can replace imported goods.