Cross sectoral linkages to explain structural transformation in Nepal

Abstract

Many developing countries considers export-oriented Structural Transformation as panacea for economic development. Existing literature on economic growth and structural change also relies on trade data for policy implication on country's competitiveness and long-term growth prospects. With this backdrop, this research aims to identify cross sectoral linkages using Input-Output (IO) Data and quantifies the economy-wide impacts of Trade and productivity oriented Structural transformation in Nepal on macro as well as at household level using a Global Commutable General Equilibrium (CGE) Model. The model is calibrated with latest Nepal Social Accounting Matrix 2007–08. Using Input Output framework, sectors with Higher Backward linkages are Hotels, Food, Wood, Textile and Wearing Apparel. This means inputs of these sectors come predominantly from other sectors of the economy. Whereas Construction, Agriculture, Hunting, forestry and fishing, are the sectors with Higher Forward linkages. This implies the fact that the outputs of these sectors are used as inputs in other sectors directly or indirectly on a large scale. The simulation results show that Sectoral and Labor Productivity in favor of promising sectors (Manufacturing and Services) have significant positive effects (in terms of growth, welfare, household income) on Nepal economy.