Economic International Trade in a Developing Country as Seen in Nepal

Identification of the Country

For the given assignment we were supposed to choose a country for the purpose of conducting research that is required to fully the international trading profile of the country. For the further research purpose, I have chosen country NEPAL. Nepal is a developing country with an agricultural economy. In recent years, the country's efforts to expand into manufacturing sectors and other technology sectors have made significant progress.

Economic Profile

Agriculture continues to be Nepal's main economic activity, employing about 65% of the population and providing 31.7% of GDP. GDP depends to a large extent on remittances (29.1%) of foreign workers. The economic development of social services and infrastructure in Nepal has not progressed as per the need. Kathmandu, the capital city of Nepal is connected to the neighbor country India and to the nearby mountainous areas via the road, but still the capital was suffered the problem of lack of fuel and transport equipment because of the general strike which used to occur time to time on Nepal and still happens time to time. However, the export-oriented industries, such as: carpet and garment industries have grown rapidly in recent years and now covers for around 70% of the total merchandise exports. The cost of living index in Nepal is comparatively lower than in many countries and the quality of life has been reduced to a much less desirable value in recent years. As discussed in the scenario of Nepal, agriculture is the main source of economy, followed by production, trade and tourism. The main sources of earnings in foreign currency are Gurkha exports of goods, services, tourism and remittances. The annual gross domestic product (GDP) is about 4.3 billion US dollars. Some economic majors of Nepal are discussed below:

Agriculture

80% of the Nepalese farmers practice agriculture and those covers for over 40% of GDP. About three million tons of rice are produced every year in Nepal, it is also the staple food of Nepal. Other crops such as: corn, wheat, millet and barley are also counted as an important crop. Income crops such as sugar cane oilseeds, tobacco and tea etc. are also widely grown in addition to the food crops.

Production

Sadly, production is still under development and covers less than 10% of GDP. The main industries for production are wool carpets, clothing, fabrics, leather goods, paper and cement. Other products made in Nepal are steel tools, cigarettes, drinks and sugar. There are many large-scale modern factories, but most are craft or small-scale operations.

Trade

Trade has been the important factor for the economy of Nepal. Foreign trade is mainly followed by the process where the manufactured products are imported whereas the agricultural raw materials are exported. As per the research, manufactured goods and oil products worth about $ 1 billion are imported in Nepal every year, and the value of exports is about $ 315 million. Wool carpets are the main export of Nepal and they contribute over $ 135 million a year to the country. The exports of clothing represent more than 74 million US dollars and the craft has an approximate value of 1 million US dollars

Tourism

Making tourism one of the Kingdom's largest industries, this sector has grown rapidly since its creation in 1950. At one time, tourism was the main source of foreign currency in the country. (Factbook, 2018) (Foundation, 2018) (tours, 2015)

Political Profile

The name 'Nepal' appears for the first time in the texts of the Vedic period of the Indian subcontinent, the time of ancient India, where Hinduism was founded, its predominantly religion. The cosmopolitan region has developed a different traditional art and architecture. The Kingdom of Gorkha was reached up to the Union of Nepal in the 18th century. Later, the Shah Dynasty founded the Kingdom of Nepal and then they joined the forces with the British Empire under the Government Minister of that time, Rajput Rana. Though the country Nepal was never colonized itself, but it served as a mediatory channel between imperial China and British India. Then the introduction of parliamentary democracy was done in 1951 but was suspended in 1960 and 2005 twice by the Nepalese monarchs. Then, Nepal's civil war in 2008 led to the official announcement of the Nepal as a secular republic. The 2015 constitution of Nepal makes Nepal a secular federal republic of parliament divided into seven provinces. Nepal was admitted to the United Nations in 1955, and in 1950 friendly treaties were signed with India and the People's Republic of China. Nepal is also a member of the Freedom of Movement and the Bengali Initiative. (NEWS, 2018)

Historical Development Profile

Economic development in Nepal has been complicated and conditioned by the constant change in political scenarios that ranged from the monarchy to being ruled by the communist party in the current context. Nepal, an isolated agricultural society until the mid-twentieth century, entered the modern era in 1951 without schools, hospitals, roads, telecommunications, electricity, industry or civil service. However, the country has moved towards sustainable economic growth since the 1950s and has opened it up to economic liberalization that has led to economic growth and improved living standards compared to the past. The main challenges facing the country to achieve greater economic development are frequent changes in political leadership and corruption.

International Trade

Brief Background

Nepal is a landlocked nation, surrounded by India on three sides and by Tibet (now a province of China) to the north. Historically, international trade prior to the 1950s was with these countries. Exports consisted of primary agricultural products, while anything that is not produced locally was imported. During the development years, these imports included industrial inputs, fertilizers and oil. Since the 1970s, the trade balance has become increasingly negative. However, during the same period, exports of clothing and carpets increased to nearly US $ 300 million, and trade with other countries expanded to the detriment of trade with India.

Export include agricultural surpluses of the fertile Terrain region, mainly rice, but also tobacco, jute and vegetable oils, raw materials such as leather, leather, herbs, textile fibers, metallic minerals and some manufactured products, such as bamboo products, wooden furniture and textiles. Imports include basic needs such as salt, sugar, tea, medicines, petroleum products and chemicals, machinery, cement, coal and spare parts for development. Trade relations with India were first codified in 1950 with the Trade and Traffic Treaty, which reduced tariffs and taxes on goods flowing between Nepal and India. In subsequent amendments and renewals of the treaty, transit facilities were established for exchanges between Nepal and other Indian countries in the port of Calcutta. Trade with Tibet, mainly the barter of agricultural products, declined towards the end of the twentieth century when the British in India opened alternative routes.

The limited Tibetan market and its inaccessibility have also slowed the development of this barter trade. The negotiations on Bangladesh's maritime access, which cover 26 kilometers of Indian territory, have been difficult. Nepal has been more successful in increasing its exports to countries such as the United States, Britain, Germany and Japan. The trade balance of Nepal is oriented towards imports, partly because the demand for industrial inputs and consumer goods has increased, in contrast to local production. India, Hong Kong and Singapore are the main importing partners of the country. Governments have sought to increase export revenues by diversifying products and reducing import costs by replacing imports for local production. Policies such as the exporters' trade rights regime and a double exchange rate and a single exchange rate have been formulated to facilitate the achievement of these objectives. To its credit, Nepal has reached favorable agreements with its trading partners to compensate for its landlocked status.

Data Detail

Nepal mainly exports iron and steel, knotted carpets, textiles, plastics, hollow tubes, beverages and vegetables. Nepal mainly imports oil, gold, iron and steel, clothes, pharmaceutical products, cement, electronic appliances, food and vehicles. Nepal suffered a serious supply chain constraint during a fiscal year 2015/16. As a result, the import declined nearby 1.5%. On the other hand, the annual exports plummeted nearly by 17.5% resulting in poor overall trade performance. Nepal’s lack of infrastructure and geographic constraints has led to chronic trade deficits. This larger trade gap demands a huge amount of financial flows preventing the potential opportunity of investment in economically productive sectors. The statistics presented offers the valuable insights of Nepal Foreign trade detail. The data presented are based on Automated System for Customs Data (ASYCUDA) obtained form 14 major Customs Offices (Mechi, Biratnagar, Jaleshwor,Janakpur, Birgunj, Dryport, Bhairahawa, Krishnanagar,Nepalgunj, Kailali, Kanchanpur, Rasuwa, Tatopani and TIA). Thus manual based customs offices which constitutes negligible amount of merchandise trade has been excluded. (Nepal, 2017)

Effect of International Trade on Economy

International trade enables a country to enjoy the advantages of international specialization according to comparative costs. Every country specializes and exports those goods which can be produced in a cheaper amount and can exchange for what others can provide at a lower cost. Foreign trade widens the area of the market as well as the scope of the a better use of machinery, innovative activity, technical visibilities, and the labor productivity, which results to the better trading of the country which can be enjoyed in the forms of increasing returns and economic development. Foreign trade can also help in the development of a country enabling it to exchange domestic goods saving low growth potential for foreign goods with high growth potential. According to J. S. Mill, trade benefits the less developed country through ‘the introduction of foreign arts, which raise the returns derivable from additional capital to a rate corresponding to the low strength of the desire of accumulation’. Nepal, being the less developed country, International trade is providing the huge benefit to the country. International trade enables underdeveloped countries to produce more of those goods in which they enjoy greater comparative advantage.

Another direct advantages of foreign trade for the economic development of underdeveloped countries is that these countries can industrialize themselves by importing necessary capital goods like machinery, semi-finished products and industrial raw materials from industrialized developed countries. In return, these countries can export primary goods and mineral resources and thus solve the problem of balance of payments. In this way, import of capital goods and export of primary goods are possible under foreign trade.Thus, foreign trade, by extending the size of the market, exercises a dynamic influence on the economy. In turn, it helps to raise the production at higher trade. As a result, country enjoys the benefits of external and internal economies of scale.

International Trade empowers a nation to enjoy the upsides of International specialization as indicated by relative expenses. Each nation practices and fares those items which it can create less expensive in return for what others can give at a lower cost. Remote exchange, by extending the degree of the market and the extent of the division of work, allows a more noteworthy utilization of apparatus, invigorates advancements, beats specialized unified qualities, raises the profitability of work, and by and large empowers the exchanging nation to appreciate expanding returns and monetary improvement. Remote exchange can likewise help in the advancement of a nation empowering it to trade local products sparing low development potential for outside merchandise with high development potential.

As indicated by J. S. Factory, exchange benefits the less created nation through 'the presentation of outside expressions, which raise the profits resultant from extra cash-flow to a rate comparing to the low quality of the craving of gathering'. Nepal, being the less created nation, International exchange is giving the gigantic advantage to the nation. Worldwide exchange empowers immature nations to create a greater amount of those merchandise in which they appreciate more prominent similar favorable position. Another immediate focal points of outside exchange for the monetary improvement of immature nations is that these nations can industrialize themselves by bringing in vital capital merchandise like apparatus, semi-completed items and modern crude materials from industrialized created nations. Consequently, these nations can send out essential products and mineral assets and in this way take care of the issue of parity of installments. Thusly, import of capital products and fare of essential merchandise are conceivable under remote exchange. Along these lines, outside exchange, by expanding the extent of the market, practices a dynamic impact on the economy. Thus, it raises the creation at higher exchange. Subsequently, nation appreciates the advantages of outside and inward economies of scale.

Conclusion

Foreign trade is considered a key factor in accelerating economic development. Most countries participate in foreign trade to create jobs. In developing countries, trade is the main driver of the benefits of globalization. Nepal, being a developing country, is under the huge benefit of international trade however there are still the number o areas to be developed regarding the trade. In a same way as international trade effects the economy, economy also has effect on International trade. The lack of strong economic condition in Nepal is limiting the possibilities of better range and scope of foreign trade. Provided the strong source, Nepal has the wide scope of International Trade Market.

As per the requirement of the assessment, the research and analysis was done on the real world situation where developing country “Nepal” was considered for the research purpose. The various research paper, journals and legal sites were overviewed for the research purpose. After the detail study on the profile (Economic, Historic development, political) and international trade on “NEPAL”, the report was prepared with briefing of finding provided the proper references of every evidence. Thus, the assigned task was completed in the given time frame.(Shafiei, 2019)