Export performance and potential with regional partners: The case of a landlocked LDC, Nepal

This paper assesses export performance and potentials for increased bilateral trade with
regional partners of Nepal, a least-developed country (LDC) in South Asia. Following an
overview of the country’s export performance, and the distinct policy and logistical challenges
it faces as a landlocked country, an econometric analysis of the determinants of bilateral exports
is undertaken using the gravity modelling framework. The results suggest that the ‘structural’
factors such supply-side constraints, distance to markets, and cultural proximity as
geographical and cultural proximity have mattered more than trade and other policy barriers
imposed by destination markets. The paper also identifies partners to which Nepal appears to
be “under-exporting,” and concludes that there is much room for the country to integrate further
with regional markets if it were to overcome its supply side constraints.