1.1 nation through to 1990 and the creation

1.1       Background of the Study

Bordering two of the world’s largest economies and countries, Nepal is a
nation rich in history and culture; however, Nepal remains one of the least
economically and politically developed nations in Asia (CIA World factbook,
2015). While there are a number of factors that inhibit Nepal’s economic growth
and development, such as geography and a long period of isolationism (only
ended in the early 1950s), political instability is a major contributing
roadblock on Nepal’s journey towards sustained development (von Einsiedel,
Malone, and Pradhan, 2015; Gautam, 2016). However, there is a lack of research
to determine the amount of effect political instability has on Nepal’s economic

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After briefly describing Nepal’s economic and political history, from the
formation of the modern nation through to 1990 and the creation of the 1990
democratic constitution, this thesis will analyze global determinants and
factors related to political instability and corresponding level of economic
development progress. To better understand specific factors related to Nepal’s
political and economic development, the thesis will next describe Nepal’s major
modern political and economic events from 1990-2016. Afterwards, the thesis
will then compare the global and Nepalese specific determinants to create a
better understanding of the relationship between political instability and
economic progress. The thesis will then describe a way ahead – the methods that
Nepal can use to not only increase but sustain economic growth. The thesis will
then conclude and recommend areas of further research.

Nepal is a small landlocked nation whose government and economic system
is still in flux; however, the Nepalese are a determined, proud, and energetic
people. Although there are obstacles towards development progression in their
path, the Nepalese will continue to work and overcome any hindrance.



1.2       Statement of the Problem

Although South Asia is recognized as the world’s fastest-growing
economic region, with several South Asian nations realizing over 6.0% GDP
growth rates (World Bank Report, 2015), Nepal is not yet realizing economic
achievements in-line with its South Asian neighbors. Many researchers (see
Gautam, 2016) argue that Nepal’s decades-long state of political transition is
a major contributing factor leading to Nepal’s inability to maintain continued
economic development.

As of March 2016, Nepal was on its way to simultaneously having South
Asia’s highest inflation and lowest growth rates (ADP Report, 2016). While
rising inflation and poor growth rate partially reflect Nepal’s recent natural
calamities and trade issues, Nepal has always been one of South Asia’s poorest
performing economies (Nepal GDP Per Capita, 2016).

There are many reasons experts point to for Nepal’s inability to
maintain stable economic growth and development. Nepal is a landlocked nation
whose topography, location, and frequency of natural disasters; according to
Landes’ (1999) determinant theory of geographic limiters to economic
development, will ensure that Nepal faces economic development delays and
difficulties. However, geography is not the sole inhibitor of Nepalese growth.
Of all the landlocked nations in Asia, only Afghanistan scores lower than Nepal
in any development category (CIA World Factbook, 2016); furthermore, all other
South Asian nations face regular natural disasters but are still generally
outperforming Nepal. Thus researchers must look towards reasons for Nepal’s
slowed economic development. Instead of geographic determinants, some academics,
notably Easterly (2001), have argued that many developing nations have suffered
similar economic hardships as Nepal due to poorly planned government policies.
These researchers argue that both domestic and international governments,
regardless of their efforts, did little to incentivize economic growth;
therefore, individuals did little to support economic development. While
Easterly’s research offers more insight into reasons behind poor growth, it
does not concentrate on Nepal (in his seminal book, Easterly only mentions
Nepal once). Nevertheless, Easterly’s research into policy shortfalls as
determining factors contributing to poor economic development is a starting
point for research into Nepal’s potential political issues and their relation
to economic progress. Specifically, research must be conducted to find any
linkage between Nepal’s political instability and the nation’s inability to
achieve stable long-term economic growth and development. Through a thorough
analysis of relevant literature, this paper will seek answers to the following

1.2.1 What is the relationship between political instability and
economic development – both globally and in Nepal?

1.2.2 What level of political stability must be reached before a
nation’s economic growth is no longer affected?

1.2.3 What is the way ahead for Nepal to not only increase but sustain
economic growth?


1.3 Objective of the Study

The following are the objectives of this research paper:

To explore the relationship between political instability and economic
development – looking both at global and unique Nepalese determinants and

To better understand the level of political stability a country must
reach before no longer affecting economic progress

To determine a way ahead for Nepal to not only increase but sustain
economic growth.


1.4       Significance of the study

This study is a novel means through which researchers can better
understand the links and relationship between political instability and
economic progress. Although the study will focus primarily on Nepal, the
research will contribute to the larger academic fields of political economic
development, political science, security studies, and economics. Not only
contributing to further understanding of the research, this study will include
logically sound and well-reasoned recommendations to not only increase and
sustain economic progress but also areas of further study.


1.5       Limitations of the Study

Major limiting factors to this study are
time, access to current research, access to key individuals and subject matter
experts, and possible culturally related analytical errors or
misinterpretations. Through prioritizing effort and focus of study, the
researcher will address the lack of time. By utilizing college and local
libraries, internet databases, and interviews with key personalities as able,
the researcher will address access to current research and subject matter
experts. In an effort to minimize any culturally related analytical errors or
misinterpretations, the researcher will make every effort to maximize the use
of Nepalese economic and political experts as editors and advisors.


1.6       Research Methodology

This thesis will rely most heavily on analysis of previous studies,
books, and articles related to the thesis’ major focus areas. The research will
also include interviews with subject matter experts (such as historians
focusing on Nepal, economists, politicians, or development specialists), and
will also include the use of Nepalese academics in order to correct some of the
likely cultural misunderstands that could lead to misinterpretations or even incorrect
analysis. This thesis will not rely upon any testing or novel research, because
the main focus of this research is to use existing historical and economic
materials for comparison, data collection, analysis, and review in order to
fully complete the objectives of this study.