Economic Liberalization in Nepal: Evaluating the Changes in Economic Structure, Employment and Productivity

Abstract

Nepal has been following the policy of economic liberalization since the mid-1980s which was accelerated with the start of 1990s. A key premise of economic liberalization is to create a situation that will drive economic resources towards more productive uses leading to a sustained growth. In this context, this paper examines the changes in structure, employment and productivity in the Nepalese economy for the period of 1991-2011 based on the World Bank’s sectoral growth decomposition method. Structural transformation that encourages the movement of labour and other resources from low productive sectors into high productive economic activities is considered to be successful for high economic growth. Sectoral productivity and employment pattern of growth have important implications for inclusive growth and poverty alleviation as well. Despite some structural changes through economic liberalization process, empirical evidence shows that the Nepalese economy has remained sluggish in employment generation and the structural changes have not been growth enhancing. Government should devise the policies of generating employment in high productive sectors in order to increase both employment and productivity in the economy to raise per capita income.