Economic Diplomacy, Strategic Hedging, and Foreign Policy Adaptation in Nepal: Evidence from India–China–US Competition (2017–2026)

Abstract

The growing strategic competition between India, China and the United States has shaped the diplomatic context for small states in geologically unstable areas. Small states have also increasingly sought to bring economic engagement, development assistance, investments and connectivity efforts into relation with the broader foreign policy. Despite burgeoning studies focusing on Nepalese foreign policy, they mostly treat bilateral relationships and foreign policy events in isolation or as separate episodes, failing to incorporate economic diplomacy, strategic hedging, and policy adaptation. This study explores how economic diplomacy has mediated Nepal's foreign policy adaptation within India-China-US competition over the period 2017-2026. Based on Adaptive Economic Hedging framework, this research understands strategic hedging as an instrumental process for small states' maximizing economic opportunities while sustaining political autonomy in the great power rivalries. This study uses a mixed-method approach, integrating policy documents analysis, secondary economic statistics, and major diplomatic engagement. The research reveals that Nepal is more likely to engage in economic diplomacy to broaden external linkages, attract investment, diversify foreign partnerships, and reduce reliance on individual foreign powers. Strategic hedging, on the other hand, becomes the most appropriate strategy, providing adaptability of policy making and enabling to engage with powers at a balance. It contributes to the IR theory by combining economic diplomacy and hedging theory as a framework of small-state foreign policy making. The study offers some policy suggestions, namely, to develop institution of economic diplomacy, encourage multiple external engagement and strengthening strategic capacity for enhancing national interest.