External Sector Dynamics, Investment and Economic Growth in Nepal: A Vecm Perspective

External Sector Dynamics, Investment and Economic Growth in Nepal: A Vecm Perspective | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article External Sector Dynamics, Investment and Economic Growth in Nepal: A Vecm Perspective Anish Poudel This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7352337/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study investigates the dynamic relationships between Nepal’s real GDP, exports, imports, and gross fixed capital formation (GFCF) using a Vector Error Correction Model (VECM), with remittances included as a control variable. Using annual data from 1975 to 2023, the analysis shows the presence of two long-run cointegration relationships among these variables. The results reveal that while exports negatively impact GDP, they contribute positively in the long run. Imports, particularly of capital and intermediate goods, enhance economic growth in the short term but may lead to external imbalances without corresponding export growth. GFCF remains the primary driver of GDP expansion in both the short and long run. The error correction mechanism suggests that deviations from the long-run equilibrium are corrected at a speed of 56.7% per period. Variance decomposition analysis highlights the growing role of investment in sustaining exports, while GDP growth largely influences imports. The findings emphasize the need for policies that enhance export competitiveness, optimize imports for productive use, and promote investment-driven economic growth to ensure Nepal’s long-term macroeconomic stability. Other Economics Economic Growth Exports GFCF Imports VECM Full Text Additional Declarations The authors declare no competing interests. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. 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