Determinants of Export Performance of a Landlocked Country with Developing Economy: Time-series Econometric Analysis of Nepal’s Trade from 1975 to 2021

Abstract

The study aimed to identify the key determinants of the export performance of Nepal, a landlocked country with a developing economy. We used econometric time-series analysis to investigate the association of export performance with foreign direct investment, foreign exchange rate, and import value data from 1975 to 2021. The log-transformation of export performance, foreign direct investment (FDI), foreign exchange rate (FER), and import value were not stationary at level/order null I (0), but at the initial difference, I (1). Despite significant long-run relationships between export performance, FDI, FER, and import value, a short-term significant association existed with normalized co-integration and high log-likelihood (Adjusted R2 = 98.98, the value of Durbin-Watson test ≈2, P<0.01). Further, the foreign exchange rate had a significant effect on exports (p<0.01), while foreign exchange and imports had a significant impact on FDI (p<0.1 & p<0.05, respectively). Our study concluded that there is no co-integration of exports with FDI, FER, and import value in the long run, but FER interacts with them in the short run. The absence of a significant long-run relationship between export performance with FER, FDI, and import value could be due to rapid political changes and natural disasters, such as earthquakes from 1975 to 2021, leading to further changes in the business environment. These findings have important implications for Nepal's economic development.