Cash Incentive Scheme in Nepal: Is It a Panacea to Boost Exports?

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 develop ing 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.