The Impact of GDP Growth, Remittance and Urbanization on Poverty Reduction in Nepal

Abstract

This paper analyzes the dynamics of poverty reduction in Nepal from 1995 to 2023, focusing on the impacts of economic growth, remittances, and urbanization. Employing data from four rounds of the Nepal Living Standards Survey (NLSS), this research employs econometric methods with Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS), to investigate long-run relationships among the variables. The findings of this paper expose a significant negative relationship between GDP growth and the poverty headcount rate, indicating that a 1% increase in GDP per capita leads to a 0.32% decrease in poverty levels. Remittances emerge as a critical factor in poverty alleviation, particularly in rural areas, although reliance on remittances poses risks due to potential fluctuations in global economies. Additionally, this paper highlights the dual challenges posed by urbanization, as increased urban population growth correlates with rising poverty rates, necessitating comprehensive urban policies that address housing and employment needs. This research identifies significant regional disparities in poverty levels, calling for targeted interventions to address the exclusive challenges confronted by both rural and urban populations. Overall, this paper contributes to the literature by providing insights into the complex interplay between economic growth, remittances, and urbanization, and suggests avenues for future research on climate change and digital inequality in Nepal.