Measuring the Economic Costs of Conflict: the Effect of Declining Development Expenditures on Nepal's Economic Growth

The study was undertaken by the Asian Development Bank's Nepal Resident Mission (NRM) to measure the economic costs of the conflict, and the effect of declining development expenditures on Nepal's economic development. This paper uses the Nepal Macroeconometric Model to measure it. The paper tries to establish the relationship between development expenditures and economic growth and contribute to improving the understanding of the costs of conflict in Nepal.

This paper attempts to measure the economic costs of conflict, focusing particularly on the impact of continued decline in development expenditures on gross domestic product (GDP) growth. The Nepal Macroeconometric Model is used to estimate GDP growth under different conflict and no-conflict scenarios of development expenditures. Scenario analysis indicates that if development expenditures decline at the current rate (4.2%), the total GDP growth loss is 8.3% for the period between the fiscal years 2005 and 2009, an average loss of 1.7% of growth per annum. If the conflict intensifies and development expenditures decline at twice the current rate (8.4%), total GDP growth lost is 10.3%, an average loss of 2.1% of growth per annum.