Analysis of Economic Growth and Other Macro-Economic Variables of Nepal

Abstract

The government plays a major role in providing public goods and services, such as infrastructure and education, which can promote economic growth. Additionally, the government can intervene in markets to correct market failures, such as monopolies or externalities. Fiscal and monetary policies are also tools used by governments to stabilize the economy during periods of inflation, recession, or other economic fluctuations. The core objective of the thesis entitled ANALYSIS OF ECONOMIC GROWTH AND OTHER MACRO-ECONOMIC VARIABLES OF NEPAL is to analyse the relationship between Gross Capital Formation (GCF), Government Revenue (GR), Inflation (CPI), and Gross Domestic Product (GDP) in Nepal. The ARDL and ECM models were used to investigate the short- and long-run relationships between the variables. This study has been conducted to examine the temporal relationship (long-term and short-term) between the aforementioned macro-economic variables with GDP by analysing the time-series data between 1990-2022. The data were analysed using various analytical techniques such as Unit Root Tests, ARDL Model to Cointegration Tests, ECM Model, Bound Tests and related stability tests. The ARDL results show that there is a positive relationship between GCF and GDP. Further, results show that GCF has a positive effect on GDP, but the relationship is not very strong and may be influenced by other factors. In addition, the results indicate that changes in inflation do not have a significant effect on GDP. Similarly, Government Revenue does not have a significant effect on GDP. The short-run relationship between government revenue and GDP is positive, while the long-run relationship between the variables is characterized by the presence of a long-run equilibrium relationship. Based on the findings, it is recommended that policies that stimulate Gross Capital Formation may be more effective in promoting economic growth than those focused on increasing Government Revenue or controlling inflation. Keywords: economic growth, gross capital formation, government revenue, inflation