Abstract
Using time series data of the last twenty-seven years (1990 to 2016), this study tries to go in-depth regarding the relationship between macroeconomic variables and its impact on economic growth of Nepal. Further, this study also compares the economic growth of Nepal with six Asian countries such as Bangladesh, Bhutan, China, India, Pakistan and Sri Lanka. The study is based on secondary data which are extracted from a legitimate source of World Bank. The dependent variable of this study is Gross Domestic Product (GDP) growth (annual%). To observe the GDP growth, some independent variables like exchange rate, export of goods and services, Foreign Direct Investment (FDI) net flow, Gross Fixed Capital Formation (GFCF), import of goods and services and inflation are chosen. Based on the variables, statistical tools such as multiple linear regression, Karl Pearson's correlation, and trend analysis are run. As per the result, exchange rate, GFCF, and import have a significant impact on the economic growth of Nepal while export, FDI, and inflation do not have a significant impact. Further, the cross-country evidence shows that Bangladesh and India have a significant positive GDP growth trend, while Bhutan and Sri Lanka have a positive GDP growth trend but do not have a significant growth. Also, China, Nepal, and Pakistan do not have a significant growth and their growth trend is negative. Based on the results and analysis it is suggested that a strong exchange rate leads low cost of production with cheap imports and also helps to control inflation due to low prices of foreign goods and services. In this context, the policymaker should initiate to make tight policies against the reduction of inflation in the country.
Highlights
It is widely accepted that a stable macroeconomic framework is necessary for maintaining sustainable economic growth
The finding of correlation analysis suggests that there is a positive correlation between the dependent variable Gross Domestic Product (GDP) growth and independent variablesexport and inflation
While GDP growth has a negative correlation with the exchange rate, Foreign Direct Investment (FDI) inflows, Gross Fixed Capital Formation (GFCF), and import
Summary
It is widely accepted that a stable macroeconomic framework is necessary for maintaining sustainable economic growth. The major research issue here is the impact that macroeconomic variables have on the economic growth of Nepal. In spite of the fact that Nepal's economic growth rate is not that higher as compared to other developing countries, so far there has been only limited studies conducted considering the impact of macroeconomic variables in Nepalese economic growth. This study makes an attempt to answer two basic research questions- what impact do macroeconomic variables have in the economic growth of Nepal? The major research objective of the study is to examine the relationship between macroeconomic variables and its impact on economic growth of Nepal. This study compares the economic growth rate of Nepal with six South Asian countries. Readers can be aware of the current scenario of Nepal's economy
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