Nepal's Manufacturing Economy Shrinks as Service Sector Grows
Summary
Nepal's manufacturing sector is shrinking while the service sector grows, highlighting challenges of premature deindustrialization as explained by economic theories like New Structural Economics.
Key Points
- Nepal's industrial sector contribution to GDP declined from 15% in 2014/15 to 12.8% in 2024/25 while the service sector increased from 54.7% to 62%.
- Remittances constitute a significant part of Nepal's GDP at 28.6%, reflecting capital flowing into consumption and real estate rather than productive sectors.
- Old Structuralism and Washington Consensus policies both failed to sustain industrial growth in Nepal, leading to premature deindustrialization.
- New Structural Economics, advocated by Professor Justin Yifu Lin, suggests Nepal should focus on industries aligning with its comparative advantage and view the state as a facilitator, not an industrial protector.
