Economic growth and financial development are closely related. The interaction between them is
crucial and has attracted great attention of researchers. This study attempts to examine the
relationship between economic growth and financial development in Nepal between 1975 and
2012. The paper has used Augmented Dickey-Fuller and Philips-Perron tests to test for the
existence of unit root, Co-integration test to examine long run relationship and Granger Causality
test to find out causal relationship. In addition, vector error correction method has been applied to
find out the speed of adjustment and the dynamics of relationship. The empirical evidence
confirms that the financial development causes economic growth. In fact, financial development is
the cause for economic growth in terms of short-term dynamics, while economic growth sustains
financial development in the long-run. Based on the empirical findings, this study recommends
that it is necessary to launch the reform programs in the financial system to consolidate and
improve the efficiency and effectiveness of the financial system as well as to cope with the
emerging changes. Thus, it asks for the consolidation of the system not only for the positive
reinforcement between economic growth and financial development but also for the post crisis
resilience and sustainability.

This paper attempts to explore the J-curve phenomenon in the case of Nepalese foreign trade
sector in order to examine whether devaluation2 of Nepalese currency can be taken as a policy
tool for improving Nepalese trade imbalance with the rest of the world economies. Johansen’s
cointegration test, vector autoregression (VAR) model, impulse response function as well as
autoregressive distributed lag (ARDL) bounds testing cointegration approach has been employed
in order to see the relationships between the nominal effective exchange rate index (NEER) and
trade balance (TB) as well as the real effective exchange rate index (REER) and trade balance
(TB) of Nepal. The study found no evidence of “J-curve” in the case of Nepalese trade. On the
contrary to the “J-curve” phenomenon as explained by the classical text books, the findings of the
study suggest that depreciation of Nepalese exchange rate rather produces a flatter “L-curve”
phenomenon indicating that there is no room for improving Nepalese trade imbalance through a
currency devaluation process.

This paper examines discretionary fiscal policy response to the business cycle of Nepal using
annual time series ranging from 1975 to 2013. The Cyclically Adjusted Balance (CAB) of overall
budget balance is utilized as a measure of discretionary fiscal actions and the output gap a
measures of business cycles. Graphical depiction of the CAB accompanied with the output gap
shows that the government of Nepal has been pursuing counter-cyclical fiscal policy in the post
liberalization period and pro-cyclical in the pre-liberalization period. In line with the recent
empirical finding that only counter-cyclical fiscal policy is capable in performing stabilization
function, this paper found that the fiscal stimulus of the government of Nepal has also been adding
aggregate demand during downturns (bad time) and withdrawing demand during upturns (good
time) as envisaged by counter-cyclical discretionary fiscal policy. The counter-cyclicality as such
is strong during 2000s whereas there is mild pro-cyclicality during the period 2011-13. For
computing CAB, this paper assumes unitary elasticity of revenue with respect to output gap and
zero expenditure elasticity with respect to output gap. The output gap has been estimated based on
the trend component of the GDP using Kalman filter method. Factors like stronger institutions and
sound macroeconomic policies might overcome recent pro-cyclicality of Nepal and allows room
for counter-cyclical fiscal policy in the future. Similarly, the phenomenon of high fluctuations in
the fiscal impulse over time indicates uncertain and inconsistent fiscal stance of the government. It
demands for focus more on automatic stabilizers rather than more discretionary fiscal actions by
broadening tax bases and social safety nets.

This study surveys 436 college students to examine their financial literacy; the impact of
demographic, educational and personality characteristics on financial literacy. Mean, ANOVA
and logistic regression were used in carrying out analysis. Results show that most of the students
have basic level of financial knowledge but they lack in understanding of credit, taxes, share
market, financial statement and insurance. Students are highly influenced by their parents at home
and they have positive attitude towards savings. The study further identified income, age, stream
of education, types of college, and attitude of students as determinants of financial knowledge; and
financial knowledge is unaffected by gender, university affiliation, financial behavior and
influence. It is concluded that college students have basic level of financial knowledge. However,
overall financial knowledge of the students is affected by some of their demographic, educational
and personality characteristics.

This paper examines the comparative advantage of a selection of 27 Nepal’s export products, of
which 16 are extracted from the Nepal Trade Integration Strategy (NTIS 2010) list of potential
priority exports. The primary purpose of this study is to investigate if these priority export
products are in alignment with the concept of comparative advantage. Balassa’s revealed
comparative advantage (RCA) index is used as the methodology for analysis while the data used
spans from 2000 to 2011. Empirical results show that out of the 16 NTIS 2010 potential priority
exports, only 10 are products which Nepal has comparative advantage in producing, major ones
being pashmina, wool and agro food products. The findings also reveal that there are at least
three other products- carpets, textile and juice that Nepal poses high RCA indices but are not
included under NTIS 2010 priority list.