Abstract

Author:

Sameer Bista, Gangaram Biswakarma

Doi: 10.26480/seps.01.2025.48.56

This is an open access article distributed under the Creative Commons Attribution License CC BY 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

This study examines how three decades of trade liberalization have reshaped growth and inequality in Nepal through a political economy and international relations lens. Beginning with the early-1990s reforms, tariff simplification, market deregulation, and WTO accession, the analysis asks why openness yielded clear urban gains but uneven, often adverse, outcomes for rural and marginalized groups. Adopting a critical-realist stance, the study uses an explanatory sequential mixed-methods design. Quantitatively, it tracks 1990–2022 trends in trade-to-GDP, average tariffs, agricultural import shares, and distributional indicators (Gini) from national and international sources. Qualitatively, semi-structured interviews with policymakers, economists, business leaders, and civil society actors probe mechanisms linking external commitments, domestic capability, and distributional effects. Findings reveal a dual trajectory. Liberalization expanded exports and investment in urban, tradables-oriented activities (textiles, carpets, handicrafts) and catalyzed FDI in hydropower and infrastructure. Yet these gains clustered where infrastructure, finance, skills, and logistics were already strongest. Agriculture, employing most Nepalis, faced import competition, thin value chains, and weak technology adoption, producing stagnant farm incomes and migration pressures. Inequality oscillated across phases but remained structurally embedded along geography, class, caste, gender, and skill. Diplomacy was pivotal but insufficient. WTO rules and regional/bilateral agreements with India and China (including BRI corridors) improved market access and bargaining space; however, compliance burdens, transit dependence, and domestic capacity gaps limited broad-based benefits. External diversification helped hedge geopolitical risk without overcoming internal bottlenecks in infrastructure, institutions, and firm capabilities. Policy implications center on coupling openness with inclusion: rural roads, power, and cold￾chain; targeted support to smallholders and SMEs; streamlined customs and standards recognition for agro/light manufacturing; gender- and inclusion-sensitive skills and finance; participatory trade governance; and outcome-oriented economic diplomacy that reduces non-tariff barriers. The study contributes a cohesive account linking trade regimes, geopolitics, and domestic institutions, offering an actionable framework for aligning liberalization with equitable, sustainable development in Nepal and comparable landlocked economies.