Liberalization, export incentives, and trade intensity: new evidence from Nepalese manufacturing industries

This paper presents an empirical analysis of the consequences of liberalization and export incentives on trade intensity in Nepal, a "least developed" country with weak institutions and severe infrastructure bottlenecks. Industry level evidence provides no support for any link between protection and export performance, or that export intensity is determined primarily by relative factor abundance. Results suggest that lower protection and public sector dominance lead to higher import penetration, and that foreign investment increases import penetration when the policy regime is restrictive. Although some of these phenomena are due to specifically Nepalese factors, such as its open border with India, some general policy lessons for other least developed economies emerge.