Can the Free Trade Agreements accelerate Nepal’s Path towards Economic Prosperity? An Econometric and CGE Model based Assessment

Nepal is an agrarian country with more than 66% of its population directly engaged in farming, which results in the agricultural and livestock sectors being the largest contributors towards gross domestic product (GDP). Thus, the main objective of this research is to quantify and analyze the economy’s wide impact of free trade agreements with 100% tariff and 50% non-tariff measures (NTMs) removal for agricultural sectors. Computable General Equilibrium (CGE) models are extensively used for analyzing the economic impacts of trade barriers and capturing the interactions between different policy scenarios from various economic perspectives. As a result, this study constructed a CGE model using a Global Trade Analysis Project (GTAP-10) Data Base for Nepal. For the South Asian Free Trade Area (SAFTA), 100% elimination of tariffs and 50% NTMs removal resulted in decreased imports of commodities by $28.15 million (0.31%) and created an increase of exports by $231.21 million (11.92%), when compared to the baseline year 2020. Similarly, for the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), 100% tariff and 50% NTMs removal also resulted in a decrease of imports by $28.75 million (0.32%) an export of the commodities increased by $234.42 million (12.09%) in comparison to the baseline year 2020. The GDP change was positive for all three scenarios with an astonishing average figure of $205.66 million, which is a 1.04% increase in GDP when compared to 2020. These findings prove that Nepal could benefit economically by removing the tariffs and non-tariffs. The findings from this study could provide policy makers with support for understanding strategic issues, revising current tariffs, and imposing appropriate changes so that Nepal can experience greater economic strength.