just and the filth all the wires and the
cables that you see hanging from the
different electric poles it’s a big
visible urban mess many of you might
have tried to access government services
in the last few weeks or months it’s
almost impossible to get anything done
without you know pulling strings
utilizing your connections or even
paying a small bribe the air we breathe
the water that we drink the vegetables
that we buy on the streets are neat you
know is lightly contaminated so there’s
a lot of anger around these issues and
in more recent weeks you know the lack
of safety around our girls and women has
become a very prominent issue 2017 I
think about 1,500 girls were raped on a
which were actually reported which is
double the number that was reported the
year before so there’s a sense of you
know frustration on the way things are
happening and and a prevailing mood of
what sociologists call enemy you know
this gradual breakdown of social norms
orderly behavior and the failure of the
society to guide you know moral precepts
in society so that’s the daily sort of
mood that we come across these days but
you step back 25 years from today let’s
go back to 90 91 91 92 after the
restoration of multi-party democracy
poverty in Nepal has declined at a
dramatic piece it’s probably you know
we’ve heard about how China has made
dramatic progress on poverty reduction
but Nepal’s piece of reduction is as
spectacular if you take the the latest
measure of international international
poverty line that measures extreme
poverty which is dollar 90 in purchasing
power up power parity terms at 2011
prices
poverty in Nepal declined from about 46%
to to less than 15% between 1996 and
2011 we haven’t done a more recent
living standard survey you if you you
know extrapolate the trends that we
witnessed during that period which
actually coincided with with the armed
conflict one can say that you know how
the level of extreme poverty in Nepal is
really possibly within single digits the
national poverty measure which is a
slightly different variation on the
international measure it’s we take a
consumption trick approach that also is
quite quite good it’s less than 20
percent now again you extrapolate you
know it’s doing very well yet you square
that with the earlier vignettes that I
presented on the daily frustrations
right so how do you reconcile this you
know when you compare Nepal with itself
25 years ago we’ve done fantastic you
know and and I’m I’m still I’m actually
not talking about the political mayhem
that we also witnessed during the same
period 10 years of Maoist civil war
another 10 years a protracted transition
and political instability yet coinciding
with this is fantastic development
achievements you know that the world has
recognized and has been rewarding us
with so mari hypothesis is that all the
things that i said at the beginning is
actually true people feel that all the
thing that i all the things that I said
about the official statistics is also
true these things are quite rigorous
credible they’re internationally
verifiable and all that so I think you
know this PAP dots of things have become
very well you know we’ve we’ve done a
lot yet people are still unhappy is
really the relative story that needs to
be told so relative to Nepal’s own
performance in 1990 or in the early 90s
we’ve done well but it’s the sense is
the prevailing sense that relative to
Nepal’s
own potentials the perceived potentials
were real and because of the way we’ve
organized our polity because of our
quality of governance
and all that and even more compelling is
a relative to peer countries
we’re like us 25 years ago or 35 years
ago we’ve really lagged behind so this
story is one of country despite immense
potentials has lagged behind its true
true true potentials and other countries
have really left ahead right so this is
the story I think in the past
development that needs to be told so
where did we begin from what are the
factors that held us back and looking
ahead is there room for optimism are
there things that we can take control
off to really steer a new course for in
a positive element so there all the
aspirations especially the younger folk
sort of carry can be realized so that’s
really the the bad bad background to
this short presentation I want to take
you back not 25 years but 250 years now
the richest and the most dynamic and the
most powerful economy that we have today
is the United States it also started its
modern journey in 1775 we know it
declared independence in 1776 but George
Washington was declared the
commander-in-chief of the Continental
Army in 1775 so we can say the United
States and started our modern journeys
together around the same time a failure
the third important fact which is
particularly relevant to economists is
the first rigorous and systematic study
of how countries prosper and why some
countries lag behind in other words the
wealth and poverty of Nations was
actually written in 1775 the mass
circulation began again in 1776 but this
was this wealth of nation the book
written by an Scottish economist
philosopher actually Adam Smith 1775 so
you know the modern journeys began there
the academic treatise on how to be
developed and what works in economic
prosperity also began there so it’s a
nice starting point and a confluence of
several coincidences what we see here
and I’ve taken a few countries here
which sort of started the journey around
the same time the pulse you know
actual data hard data is available after
1815 the segolia treaty that we had with
the after the war with the British what
is striking about this graph is each of
these countries there has come a
critical juncture a date which you don’t
know at the point it is happening but
when you look back in hindsight there’s
always a very decisive structural break
in the trajectory the development
trajectory of all the countries that
have made fantastic progress but there
are also stories of stagnation so I
won’t have time to go into detail but
with the United States for example the
the the top graph the top line for the
United States you can you can sort of
see that 1865 was their critical
juncture the end of the Civil War they
enter into this long ere are peaceful
stability and all that we’re and
technological breakthroughs are
happening the second phase of the
Industrial Revolution is is off the
ground and they’re actively borrowing
and adopting technology that is coming
out of Western Europe so that upward
climb that you see is pretty dramatic
very rapid but the good thing of dealing
with data is you do see dips and
collapses that we know have you know
history as witnessed so the first big
dip is the Great Depression the second
dip is around the Second World War but
the quickly the economy is so resilient
that quickly regroup and the upward
climb continues the other dramatic
progress is of Japan the red line again
a big collapse in Second World War but
they you know continue this process of
economic modernization and catch up very
fast the blue line is for South Korea
almost at the level of Nepal and other a
lot of the lagging African countries yet
the process of catch-up is so dramatic
that around 2015 they actually catch up
with Japan and then the later countries
you know the other other countries
Malaysia the green is for China
you know after Geiger got found on
shoppings reforms late 1970s you know it
catches up even India is is is becoming
much more dynamic with reforms unleashed
by Rajiv Gandhi in the late 80s but a
full opening up of the economy in the
early 90s under
narsimha Rao so relative to all these
countries there’s one contrasting story
of Argentina the point there is these
things actually are not automatic right
countries and the leadership the
entrepreneurs the citizens have to be
engaged in this process so that you know
they you know you translate the promise
into reality it’s not automatic and and
that lesson is really borne out by what
Argentina has gone through at the turn
of the 20th century you know they were
one of the richest countries in the
world but with certain you know false
starts wrong choices regarding policies
and institutional choices they really
lagged behind the United States so they
have continued to you know stagnate and
now they’re you know they could have
been with at American levels but here
you see there at Malaysian levels right
so there’s a story of stagnation that
also plays out over time relative to all
these and the car mentioned the critical
junctures with for all these countries
the story of Nepal dub that black line
there it appears is virtually flat so on
a relative scale if you take this
long-term historical perspective and on
the y-axis we have these international
dollars technically it’s called Geary
Comus International dollars you know the
the nominal US current figures are
adjusted to make them comparable across
countries and over time Nepal’s of
course you know it has increased per
capita income has increased but over
time on a large continuum of history and
relative to other countries that have
done well our performance relatively
speaking again almost stagnant flat so
we really haven’t grown at all on a
relatively on a relative scale
politically socially as I mentioned
earlier we’ve done you know great
fantastic progress so this is the story
of stagnation economic stagnation that
needs to be told now the reason why we
have lag behind now let’s compress the
history I don’t want to talk about 250
years let’s look at the scenario after
the Second World War when it’s now well
documented that about 13 economies did
dramatically well so forget the West
Western Europe or what what we call
Western offshoots which includes the
United States Canada Australia New
Zealand and all these countries so for
let’s just look at countries it very
well after the Second World War and sort
of the Industrial Revolution matured we
went through all these global upheavals
and some of these countries really got
the axe together and did very well
so Nobel laureate Michael Spence has
this report called the growth growth rip
Commission report where he singles out
13 economies not countries but economies
because some of some of some of these
economies include Taiwan and others
which which have a dubious political
jurisdiction but starting with Japan so
on the x-axis we have what they’re
between 1965 and 95 this period of
growth take off what was the per capita
income then of these countries relative
to that of the United States the leading
economy of that time so Japan was you
know doing very well but still only
barely 30 percent of the US per capita
income and all these other economies
right so Malaysia Malta Hong Kong
Singapore China Thailand Korea and all
these so nine of the 13 actually come
from Asia the known Asian economies
include ports wanna Malta Oman and and
Brazil Brazil has slowed down a little
bit but it really grew quite handsomely
between 1950 and 1980 now the messes of
this graph is all the countries that did
well and I also have lots of dots for
the other countries that we have not
named one common thread of all these
countries is they really invested their
way to prosperity so its investment it’s
gross fixed capital formation that
economists call in it’s a proxy for
investment relative to the size of the
economy that really matters so what is
driving at low levels of development is
investment right it’s a private
investment public investment when we are
in this rut when you are at this low
level of development you can really pump
capital in such numbers in such
quantities that you can actually
graduate from low income to middle
income status that formula won’t work
when you need to jump from middle income
to high income status that’s why you
hear notions of middle income trap for
example countries like Malaysia you know
math here and others did very well
quickly pull the country out of this low
income trap but but now they’re stuck
it’s middle income trap and very few
countries like Republic of Korea
Finland in Euro for example Taiwan have
managed to go from middle-income to high
income but many are stuck at this level
the point again here is relative to all
countries that invested around 30 to 40%
of the GDP year after year after year
accompanying the spectacular growth
rates that they were seeing Nepal is a
classic case of underinvestment so we’re
at around 15% when to see the kind of
miracle that we are we all aspire to you
should have been spending or you know
attracting investment to the tune of
thirty five to forty percent relative to
the size of your economy so this is what
we have failed now the third question
that comes is why is that so so this is
the big question right if we go out and
ask a common layperson you’ll say you
know why do you think the ball is not
developed there are corrupt politicians
are corrupt you know nothing works and
all that that’s true but you have to be
careful in science and social science
you need to be careful in really
distinguishing between the symptoms and
the structural causes so I think you
know if you if you look at the vast body
of work that’s been done on the causes
of long term prosperity in development
economics I think we can narrow the
hypothesis to two big themes the first
is geography and by that I mean our
peculiar location a landlocked location
which really has inhibited the degree of
interactions that we have with the
outside world and the second one is
extractive institutions the kind of
political and economic rules of the game
that we have in our country has really
not provided the right kind of
incentives to save to invest to
guarantee property rights for untrue
entrepreneurs to grow for enterprises to
flourish and that had really has held us
back now there are competing theories on
which is more important I personally
think you know there’s institutions are
much more dominant now because even if
you take economies that are comparable
graph wise but that I’ve experimented
with diverse institutions north and
south korea east and west germany and
you know this book that
ASIMO blue robinson did on why nations
feel let’s start with this compelling
story of Nogales half of Nogales is in
the United States the other half is in
Mexico so you know geography wise
climate wise in terms of ethnicity in
terms of the food they eat in terms of
the air and water they breathe it’s
identical the only thing that’s
different between the two halves of
Nogales is the economic and political
institutions so that’s a nice scientific
way of stablishing causality otherwise
you tend to you know confound lots of
variables and and and it it’s not often
clear you know what caused what but in
this natural experiments you can kind of
point out that it’s the quality of
economic inclusive economic and
inclusive political institutions that
tend to create the kind of incentives
that’s good for wealth creation now on
geography there’s something to be said
you know what geography did to Nepal and
Loch Ness is costly access to world
markets it restricted the flow of people
it restricted the flow of ideas it
restricted the flow of capital now
there’s a political economic dimension
there of course which needs to be
acknowledged
maybe because of this Isis isolationist
location we actually managed to keep our
sovereignty that’s a different matter
right but economically speaking this
costly distance to world markets really
you know holds you back because if you
look at global stories of variation
that’s rooted in sustained increases in
productivity productivity comes from
realization the degree to which you are
able shall eyes is shaped by the tent of
the market and by the division of labor
division of labor is shaped by the
extent of the market so the distant you
are from proximities of WorldCom’s a lot
of these channels really sort of hold
you back now there are exceptions
because the channels that I just
mentioned do not apply to those
countries so six or seven economies
inside Central Europe it doesn’t apply
to them when you talk about Switzerland
in Nepal
Switzerland is technically not even
landlocked you go to a city like Basel
you know 50% of the Swiss population
lives in low low elevation Canton’s you
know all ships that come to cities on
River Rhine can
a Lord thing there with and off load
things across the Atlantic in New York
so there’s a navigable verse which so
they don’t have access to sea but they
have navigated rivers and all the other
economies Austria and Czech Republic and
others you know you are in the center of
the world’s largest Common Market so the
traditional channels through which land
Loch Ness penalizes you doesn’t apply to
them and there are some except non
European exceptions Kazakhstan Botswana
very rich in natural resources
well-managed natural resources can sort
of negate those traditional conventional
channels so the nine dominant models of
the 19th century and the 20th century of
trip production exchange you know
commercial engagements really held us
back but more important than that is as
I argued earlier extractive institutions
right you look at the history the 250
years until 1816 it’s the shahe Kings
lot of turmoil there bheemsen Thapa
again lot of turmoil rana regime well
known well documented in history hundred
hundred plus years panchayat
economically slightly loosened up but
politically strict history restrictive
so you know how origin goes back to 1775
the you know we really opened up quality
economically and politically only around
1990 so there’s a lot to be done after
this but it geography destiny are we
doomed to stagnation are we you know
there’s there’s no for Nepal to really
climb up and there I’m an optimist right
so I do I do feel I’m convinced actually
having worked in Nepal for the last four
years that best days of Nepal are
actually ahead of us and and there are
lots of reasons for that I won’t have
time to explain them in detail but let
me share with you a few areas where we
should really focus on I think the first
thing looking ahead you know if we want
Nepal to climb to at least Sri Lankan
levels of prosperity in the next ten
years in terms of average per capita
income is recognized what are the big
shifts that that’s going on in the
Nepali economy in society at this moment
she does it there’s a there’s a
demographic window still left still
available for Nepal if we can get our
act together so a lot of the young
people who leave the country in epic
numbers today too
work in the Gulf and Malaysia you know
if it if the economy domestic economy is
going they’ll come back or they will be
they will be absorbed here so that
demographic window is really really
important for us to optimize the second
big shift which is probably a result of
this young demography is the wide
migration the my great migration
phenomenon with in Nepal and an outside
of Nepal that’s a big that we need to
acknowledge so this rhetoric of our
Nepal is a big hunk of country and you
know we need to Nepal go because his
gravitas that narrative is changing 60%
of our population have all are already
living in so-called municipalities so
people are coming out of agriculture but
they’re not being absorbed in industries
there’s jumping to the services sector
but the services sectors which
traditionally used to be high end high
value-adding sectors that’s not the case
right now it’s pretty low end kind of
services right so that trend needs to be
internalized the phenomenon of deep
connectivity so deep connectivity again
this another number that is that reveals
a lot you know in 1991 the entire
country of Nepal had seventy one
thousand phones right now 30 million you
know this leap frogging that we were
able to do technology wise big thing
proximity to China and India the entire
global economic center of gravity is
shifting 1980 it was in the middle of
the Atlantic around 2006 it came through
somewhere around east of Helsinki 2050
it will be right between India and China
and probably along the Himalayas that’s
a huge plus but if we reorient the way
we think through this possibility this
tantalizing possibility of you know
riding the wave of Chinese and in
revival that will be fantastic for us
and the availability of concessional
financing to fund large-scale
infrastructure that would also be a big
big plus v in you know enabler for us
will be there intangible assets that
Nepal has the image the reputation the
brand that we enjoy and the traditional
you know the social capital that Nepal
is known for what are the means so if
the end is sort of generating sharing
and sustaining prosperity what other
means to get
they’re taking advantage of all these
enablers I think greater productivity of
course so I’ve talked in terms of themes
like agriculture tourism water and
sanitation
but cross-cutting themes like raising
productivity should be our main focus
formal in our economy should be another
one greener urbanization is a big
opportunity because we in in many
respects we really haven’t gotten
started on this agenda in in a
systematic way
Fiera social mobility so this is a
package around quality health education
social production systems and an
effective government and governments
right now there are risks that we should
also anticipate so the big risks that
Nepal will need to factor in bring a
head disasters slow disasters and the
file rapid disasters so the slow
disasters is climate change it will
impact in you know gravely on our
agricultural situation energy situation
and all that and the quality of life
that especially the poor people lead and
the rapid disasters are the ones that
we’ve been witness to in the last three
or four years the floods the earthquakes
the landslides so vestments that we need
to make in pre disaster infrastructure
will be extremely important there are
some risks related to neighborhood
effects the macroeconomic policy choices
are constrained we may invest heavily in
our in the way we connect with the rest
of the world but if contiguous countries
don’t invest with the same spirit we are
still penalized so there’s this there’s
a lot of room for regional coordination
of shared infrastructure and all that
human capital depletion will be another
risk that that that will plague us and I
think poor governance at the federal
level at the provincial level and the
local levels will also need to be
watched so let me conclude by saying if
we you know take this big picture go
back to 1769 and analyze the journey
that we’ve all taken together take stock
of where we stand take stock of all the
possibilities and the enablers and the
means and our and and set realistic
goals in sight I really think and let me
repeat here best days of Nepal are still
ahead thank you very much
you [Applause]
cables that you see hanging from the
different electric poles it’s a big
visible urban mess many of you might
have tried to access government services
in the last few weeks or months it’s
almost impossible to get anything done
without you know pulling strings
utilizing your connections or even
paying a small bribe the air we breathe
the water that we drink the vegetables
that we buy on the streets are neat you
know is lightly contaminated so there’s
a lot of anger around these issues and
in more recent weeks you know the lack
of safety around our girls and women has
become a very prominent issue 2017 I
think about 1,500 girls were raped on a
which were actually reported which is
double the number that was reported the
year before so there’s a sense of you
know frustration on the way things are
happening and and a prevailing mood of
what sociologists call enemy you know
this gradual breakdown of social norms
orderly behavior and the failure of the
society to guide you know moral precepts
in society so that’s the daily sort of
mood that we come across these days but
you step back 25 years from today let’s
go back to 90 91 91 92 after the
restoration of multi-party democracy
poverty in Nepal has declined at a
dramatic piece it’s probably you know
we’ve heard about how China has made
dramatic progress on poverty reduction
but Nepal’s piece of reduction is as
spectacular if you take the the latest
measure of international international
poverty line that measures extreme
poverty which is dollar 90 in purchasing
power up power parity terms at 2011
prices
poverty in Nepal declined from about 46%
to to less than 15% between 1996 and
2011 we haven’t done a more recent
living standard survey you if you you
know extrapolate the trends that we
witnessed during that period which
actually coincided with with the armed
conflict one can say that you know how
the level of extreme poverty in Nepal is
really possibly within single digits the
national poverty measure which is a
slightly different variation on the
international measure it’s we take a
consumption trick approach that also is
quite quite good it’s less than 20
percent now again you extrapolate you
know it’s doing very well yet you square
that with the earlier vignettes that I
presented on the daily frustrations
right so how do you reconcile this you
know when you compare Nepal with itself
25 years ago we’ve done fantastic you
know and and I’m I’m still I’m actually
not talking about the political mayhem
that we also witnessed during the same
period 10 years of Maoist civil war
another 10 years a protracted transition
and political instability yet coinciding
with this is fantastic development
achievements you know that the world has
recognized and has been rewarding us
with so mari hypothesis is that all the
things that i said at the beginning is
actually true people feel that all the
thing that i all the things that I said
about the official statistics is also
true these things are quite rigorous
credible they’re internationally
verifiable and all that so I think you
know this PAP dots of things have become
very well you know we’ve we’ve done a
lot yet people are still unhappy is
really the relative story that needs to
be told so relative to Nepal’s own
performance in 1990 or in the early 90s
we’ve done well but it’s the sense is
the prevailing sense that relative to
Nepal’s
own potentials the perceived potentials
were real and because of the way we’ve
organized our polity because of our
quality of governance
and all that and even more compelling is
a relative to peer countries
we’re like us 25 years ago or 35 years
ago we’ve really lagged behind so this
story is one of country despite immense
potentials has lagged behind its true
true true potentials and other countries
have really left ahead right so this is
the story I think in the past
development that needs to be told so
where did we begin from what are the
factors that held us back and looking
ahead is there room for optimism are
there things that we can take control
off to really steer a new course for in
a positive element so there all the
aspirations especially the younger folk
sort of carry can be realized so that’s
really the the bad bad background to
this short presentation I want to take
you back not 25 years but 250 years now
the richest and the most dynamic and the
most powerful economy that we have today
is the United States it also started its
modern journey in 1775 we know it
declared independence in 1776 but George
Washington was declared the
commander-in-chief of the Continental
Army in 1775 so we can say the United
States and started our modern journeys
together around the same time a failure
the third important fact which is
particularly relevant to economists is
the first rigorous and systematic study
of how countries prosper and why some
countries lag behind in other words the
wealth and poverty of Nations was
actually written in 1775 the mass
circulation began again in 1776 but this
was this wealth of nation the book
written by an Scottish economist
philosopher actually Adam Smith 1775 so
you know the modern journeys began there
the academic treatise on how to be
developed and what works in economic
prosperity also began there so it’s a
nice starting point and a confluence of
several coincidences what we see here
and I’ve taken a few countries here
which sort of started the journey around
the same time the pulse you know
actual data hard data is available after
1815 the segolia treaty that we had with
the after the war with the British what
is striking about this graph is each of
these countries there has come a
critical juncture a date which you don’t
know at the point it is happening but
when you look back in hindsight there’s
always a very decisive structural break
in the trajectory the development
trajectory of all the countries that
have made fantastic progress but there
are also stories of stagnation so I
won’t have time to go into detail but
with the United States for example the
the the top graph the top line for the
United States you can you can sort of
see that 1865 was their critical
juncture the end of the Civil War they
enter into this long ere are peaceful
stability and all that we’re and
technological breakthroughs are
happening the second phase of the
Industrial Revolution is is off the
ground and they’re actively borrowing
and adopting technology that is coming
out of Western Europe so that upward
climb that you see is pretty dramatic
very rapid but the good thing of dealing
with data is you do see dips and
collapses that we know have you know
history as witnessed so the first big
dip is the Great Depression the second
dip is around the Second World War but
the quickly the economy is so resilient
that quickly regroup and the upward
climb continues the other dramatic
progress is of Japan the red line again
a big collapse in Second World War but
they you know continue this process of
economic modernization and catch up very
fast the blue line is for South Korea
almost at the level of Nepal and other a
lot of the lagging African countries yet
the process of catch-up is so dramatic
that around 2015 they actually catch up
with Japan and then the later countries
you know the other other countries
Malaysia the green is for China
you know after Geiger got found on
shoppings reforms late 1970s you know it
catches up even India is is is becoming
much more dynamic with reforms unleashed
by Rajiv Gandhi in the late 80s but a
full opening up of the economy in the
early 90s under
narsimha Rao so relative to all these
countries there’s one contrasting story
of Argentina the point there is these
things actually are not automatic right
countries and the leadership the
entrepreneurs the citizens have to be
engaged in this process so that you know
they you know you translate the promise
into reality it’s not automatic and and
that lesson is really borne out by what
Argentina has gone through at the turn
of the 20th century you know they were
one of the richest countries in the
world but with certain you know false
starts wrong choices regarding policies
and institutional choices they really
lagged behind the United States so they
have continued to you know stagnate and
now they’re you know they could have
been with at American levels but here
you see there at Malaysian levels right
so there’s a story of stagnation that
also plays out over time relative to all
these and the car mentioned the critical
junctures with for all these countries
the story of Nepal dub that black line
there it appears is virtually flat so on
a relative scale if you take this
long-term historical perspective and on
the y-axis we have these international
dollars technically it’s called Geary
Comus International dollars you know the
the nominal US current figures are
adjusted to make them comparable across
countries and over time Nepal’s of
course you know it has increased per
capita income has increased but over
time on a large continuum of history and
relative to other countries that have
done well our performance relatively
speaking again almost stagnant flat so
we really haven’t grown at all on a
relatively on a relative scale
politically socially as I mentioned
earlier we’ve done you know great
fantastic progress so this is the story
of stagnation economic stagnation that
needs to be told now the reason why we
have lag behind now let’s compress the
history I don’t want to talk about 250
years let’s look at the scenario after
the Second World War when it’s now well
documented that about 13 economies did
dramatically well so forget the West
Western Europe or what what we call
Western offshoots which includes the
United States Canada Australia New
Zealand and all these countries so for
let’s just look at countries it very
well after the Second World War and sort
of the Industrial Revolution matured we
went through all these global upheavals
and some of these countries really got
the axe together and did very well
so Nobel laureate Michael Spence has
this report called the growth growth rip
Commission report where he singles out
13 economies not countries but economies
because some of some of some of these
economies include Taiwan and others
which which have a dubious political
jurisdiction but starting with Japan so
on the x-axis we have what they’re
between 1965 and 95 this period of
growth take off what was the per capita
income then of these countries relative
to that of the United States the leading
economy of that time so Japan was you
know doing very well but still only
barely 30 percent of the US per capita
income and all these other economies
right so Malaysia Malta Hong Kong
Singapore China Thailand Korea and all
these so nine of the 13 actually come
from Asia the known Asian economies
include ports wanna Malta Oman and and
Brazil Brazil has slowed down a little
bit but it really grew quite handsomely
between 1950 and 1980 now the messes of
this graph is all the countries that did
well and I also have lots of dots for
the other countries that we have not
named one common thread of all these
countries is they really invested their
way to prosperity so its investment it’s
gross fixed capital formation that
economists call in it’s a proxy for
investment relative to the size of the
economy that really matters so what is
driving at low levels of development is
investment right it’s a private
investment public investment when we are
in this rut when you are at this low
level of development you can really pump
capital in such numbers in such
quantities that you can actually
graduate from low income to middle
income status that formula won’t work
when you need to jump from middle income
to high income status that’s why you
hear notions of middle income trap for
example countries like Malaysia you know
math here and others did very well
quickly pull the country out of this low
income trap but but now they’re stuck
it’s middle income trap and very few
countries like Republic of Korea
Finland in Euro for example Taiwan have
managed to go from middle-income to high
income but many are stuck at this level
the point again here is relative to all
countries that invested around 30 to 40%
of the GDP year after year after year
accompanying the spectacular growth
rates that they were seeing Nepal is a
classic case of underinvestment so we’re
at around 15% when to see the kind of
miracle that we are we all aspire to you
should have been spending or you know
attracting investment to the tune of
thirty five to forty percent relative to
the size of your economy so this is what
we have failed now the third question
that comes is why is that so so this is
the big question right if we go out and
ask a common layperson you’ll say you
know why do you think the ball is not
developed there are corrupt politicians
are corrupt you know nothing works and
all that that’s true but you have to be
careful in science and social science
you need to be careful in really
distinguishing between the symptoms and
the structural causes so I think you
know if you if you look at the vast body
of work that’s been done on the causes
of long term prosperity in development
economics I think we can narrow the
hypothesis to two big themes the first
is geography and by that I mean our
peculiar location a landlocked location
which really has inhibited the degree of
interactions that we have with the
outside world and the second one is
extractive institutions the kind of
political and economic rules of the game
that we have in our country has really
not provided the right kind of
incentives to save to invest to
guarantee property rights for untrue
entrepreneurs to grow for enterprises to
flourish and that had really has held us
back now there are competing theories on
which is more important I personally
think you know there’s institutions are
much more dominant now because even if
you take economies that are comparable
graph wise but that I’ve experimented
with diverse institutions north and
south korea east and west germany and
you know this book that
ASIMO blue robinson did on why nations
feel let’s start with this compelling
story of Nogales half of Nogales is in
the United States the other half is in
Mexico so you know geography wise
climate wise in terms of ethnicity in
terms of the food they eat in terms of
the air and water they breathe it’s
identical the only thing that’s
different between the two halves of
Nogales is the economic and political
institutions so that’s a nice scientific
way of stablishing causality otherwise
you tend to you know confound lots of
variables and and and it it’s not often
clear you know what caused what but in
this natural experiments you can kind of
point out that it’s the quality of
economic inclusive economic and
inclusive political institutions that
tend to create the kind of incentives
that’s good for wealth creation now on
geography there’s something to be said
you know what geography did to Nepal and
Loch Ness is costly access to world
markets it restricted the flow of people
it restricted the flow of ideas it
restricted the flow of capital now
there’s a political economic dimension
there of course which needs to be
acknowledged
maybe because of this Isis isolationist
location we actually managed to keep our
sovereignty that’s a different matter
right but economically speaking this
costly distance to world markets really
you know holds you back because if you
look at global stories of variation
that’s rooted in sustained increases in
productivity productivity comes from
realization the degree to which you are
able shall eyes is shaped by the tent of
the market and by the division of labor
division of labor is shaped by the
extent of the market so the distant you
are from proximities of WorldCom’s a lot
of these channels really sort of hold
you back now there are exceptions
because the channels that I just
mentioned do not apply to those
countries so six or seven economies
inside Central Europe it doesn’t apply
to them when you talk about Switzerland
in Nepal
Switzerland is technically not even
landlocked you go to a city like Basel
you know 50% of the Swiss population
lives in low low elevation Canton’s you
know all ships that come to cities on
River Rhine can
a Lord thing there with and off load
things across the Atlantic in New York
so there’s a navigable verse which so
they don’t have access to sea but they
have navigated rivers and all the other
economies Austria and Czech Republic and
others you know you are in the center of
the world’s largest Common Market so the
traditional channels through which land
Loch Ness penalizes you doesn’t apply to
them and there are some except non
European exceptions Kazakhstan Botswana
very rich in natural resources
well-managed natural resources can sort
of negate those traditional conventional
channels so the nine dominant models of
the 19th century and the 20th century of
trip production exchange you know
commercial engagements really held us
back but more important than that is as
I argued earlier extractive institutions
right you look at the history the 250
years until 1816 it’s the shahe Kings
lot of turmoil there bheemsen Thapa
again lot of turmoil rana regime well
known well documented in history hundred
hundred plus years panchayat
economically slightly loosened up but
politically strict history restrictive
so you know how origin goes back to 1775
the you know we really opened up quality
economically and politically only around
1990 so there’s a lot to be done after
this but it geography destiny are we
doomed to stagnation are we you know
there’s there’s no for Nepal to really
climb up and there I’m an optimist right
so I do I do feel I’m convinced actually
having worked in Nepal for the last four
years that best days of Nepal are
actually ahead of us and and there are
lots of reasons for that I won’t have
time to explain them in detail but let
me share with you a few areas where we
should really focus on I think the first
thing looking ahead you know if we want
Nepal to climb to at least Sri Lankan
levels of prosperity in the next ten
years in terms of average per capita
income is recognized what are the big
shifts that that’s going on in the
Nepali economy in society at this moment
she does it there’s a there’s a
demographic window still left still
available for Nepal if we can get our
act together so a lot of the young
people who leave the country in epic
numbers today too
work in the Gulf and Malaysia you know
if it if the economy domestic economy is
going they’ll come back or they will be
they will be absorbed here so that
demographic window is really really
important for us to optimize the second
big shift which is probably a result of
this young demography is the wide
migration the my great migration
phenomenon with in Nepal and an outside
of Nepal that’s a big that we need to
acknowledge so this rhetoric of our
Nepal is a big hunk of country and you
know we need to Nepal go because his
gravitas that narrative is changing 60%
of our population have all are already
living in so-called municipalities so
people are coming out of agriculture but
they’re not being absorbed in industries
there’s jumping to the services sector
but the services sectors which
traditionally used to be high end high
value-adding sectors that’s not the case
right now it’s pretty low end kind of
services right so that trend needs to be
internalized the phenomenon of deep
connectivity so deep connectivity again
this another number that is that reveals
a lot you know in 1991 the entire
country of Nepal had seventy one
thousand phones right now 30 million you
know this leap frogging that we were
able to do technology wise big thing
proximity to China and India the entire
global economic center of gravity is
shifting 1980 it was in the middle of
the Atlantic around 2006 it came through
somewhere around east of Helsinki 2050
it will be right between India and China
and probably along the Himalayas that’s
a huge plus but if we reorient the way
we think through this possibility this
tantalizing possibility of you know
riding the wave of Chinese and in
revival that will be fantastic for us
and the availability of concessional
financing to fund large-scale
infrastructure that would also be a big
big plus v in you know enabler for us
will be there intangible assets that
Nepal has the image the reputation the
brand that we enjoy and the traditional
you know the social capital that Nepal
is known for what are the means so if
the end is sort of generating sharing
and sustaining prosperity what other
means to get
they’re taking advantage of all these
enablers I think greater productivity of
course so I’ve talked in terms of themes
like agriculture tourism water and
sanitation
but cross-cutting themes like raising
productivity should be our main focus
formal in our economy should be another
one greener urbanization is a big
opportunity because we in in many
respects we really haven’t gotten
started on this agenda in in a
systematic way
Fiera social mobility so this is a
package around quality health education
social production systems and an
effective government and governments
right now there are risks that we should
also anticipate so the big risks that
Nepal will need to factor in bring a
head disasters slow disasters and the
file rapid disasters so the slow
disasters is climate change it will
impact in you know gravely on our
agricultural situation energy situation
and all that and the quality of life
that especially the poor people lead and
the rapid disasters are the ones that
we’ve been witness to in the last three
or four years the floods the earthquakes
the landslides so vestments that we need
to make in pre disaster infrastructure
will be extremely important there are
some risks related to neighborhood
effects the macroeconomic policy choices
are constrained we may invest heavily in
our in the way we connect with the rest
of the world but if contiguous countries
don’t invest with the same spirit we are
still penalized so there’s this there’s
a lot of room for regional coordination
of shared infrastructure and all that
human capital depletion will be another
risk that that that will plague us and I
think poor governance at the federal
level at the provincial level and the
local levels will also need to be
watched so let me conclude by saying if
we you know take this big picture go
back to 1769 and analyze the journey
that we’ve all taken together take stock
of where we stand take stock of all the
possibilities and the enablers and the
means and our and and set realistic
goals in sight I really think and let me
repeat here best days of Nepal are still
ahead thank you very much
you [Applause]
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