The effect of foreign remittance on timber imports: Evidence from Nepal

Abstract

ABSTRACT Increasing flow of foreign remittance in low- and middle-income countries has facilitated international trade and increased economic activities. With time-series modeling of data in Nepal, one of the developing countries with high remittance flow, this study analyzed determinants of timber imports and evaluated the short- and long-run effects of foreign remittance on timber imports. Results from the vector error correction model showed that foreign remittance inflow was positively related to both roundwood and sawnwood imports in long run. However, timber imports had negative long-run relationship with GDP growth suggesting that import-based timber utilizing industry have not created comparative advantage in timber market. Short-run dynamic models indicated that demand for sawnwood in domestic market is more stable than for roundwood. As foreign remittance inflow and the national economy continue to grow, ensuring the continued supply of quality sawlogs at a cheaper rate from domestic producers may help sustain the growth of timber industry, decrease foreign dependence on timber products, and help reduce national trade deficits in the long run.