TITLE:
Cash Incentive Scheme in Nepal: Is It a Panacea to Boost Exports?
AUTHORS:
Ramesh C. Paudel, Rashmi Shilpakar Rajkarnikar
KEYWORDS:
Export Performance, Export Incentives, and Gravity Modelling Approach
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.6,
December
31,
2020
ABSTRACT: Nepal’s export performance seems unable to meet the
expectation of the policy makers for a long time now, and government is trying to adopt many
policies and strategies to correct the scenario. Cash incentive to export is
one of such mechanisms in Nepal, which was implemented since 2012 to motivate
the exporters. This paper analyses the cash incentive mechanism to exports and
then investigate the association of this incentive with the export performance
using the annual data for the period of 14 years from 2005-2018, in a panel
structure, employing the gravity modelling approach for the exports from Nepal
to its trading partners. Looking the low number of Nepal’s export data
reported, we use the mirror export data as the imports are recorded more
systematically than the exports. The finding from the estimations suggests
that, instead motivating the exporters, the export cash incentive mechanism has
a statistically significant negative association with the export performance.
The reason for this may be the weakness of properly implementation of the
scheme or it may have created some negligence in the firms to produce limited
just for targeting the cash incentives so that exports are not really
motivated. Also, not all eligible exports received the cash incentive and not
all eligible firms have claimed the incentives in practice. However, from the
data analysis, it seems that the cash incentive scheme has positively
contributed to market diversification to some extent. This situation asks the
revision of the schemes or developing the proper mechanism for implementation and on the other way to initiate
other types of schemes such as credit incentives tying with production and
trade infrastructure to boost the export performance in the country.