Structural Changes in a Small and Open Economy: Evidences from Nepal

This paper reviews existing structural transformation models and prominent literatures and then empirically examines Nepalese economic structure. The research findings reveal that industrial sector is significant to increase per capita income compared to the agriculture and services sectors in Nepal. Moreover, health as indicated by life expectancy and population at working age are found to be significant to increase the income but, education and capital formation are found inconsistent with the theory and international empirics. Likewise, developing agricultural sector looks prerequisite for high and sustainable growth however efforts should be made in increasing investment significantly for the mechanization and modernization of agriculture. Developing infrastructures and fostering favorable business environment are other pre-requisites to support growth. In addition, employment-led service sector development is must with more emphasis on the tourism and human capital development.