Abstract

This paper investigates the dynamics of economic development in Nepal in the context of foreign aid, institutional change, and political instability. A brief historical account of the recent revolutions is provided to highlight the institutional background of the empirical analysis. Taking into account the time series properties of the variables of interest, the econometric analysis demonstrates that contrary to the results of some recent cross-section studies, foreign aid does contribute positively to economic development in Nepal. On the other hand, the estimation results reveal that “human capital” accumulation and political unrest have had little long term effect on per capita income.

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