Effectiveness of Foreign Aid on Economic Growth of Nepal

Abstract

This study investigates the impact of foreign aid on the economic growth of Nepal from 1975/76 to 2021/22, with a focus on the association between foreign aid and private investment. The research utilizes secondary data from the National Reserve Bank (NRB), Ministry of Finance (MOF), Central Bureau of Statistics (CBS), and other related government agencies. The study employs the models to analyze the impact of foreign aid on economic growth and investment in Nepal. The Ordinary Least Square (OLS) method is used to establish a simple relationship between the variables under study. The study reveals that foreign aid positively affects the GDP growth of Nepal and is inversely related to private investment. Based on these findings, the following recommendations are made:

Foreign aid plays a significant role in the development of some categories of people in Nepal, but most rural people do not benefit directly due to the ineffective use of foreign aid. The government should focus on improving the efficiency of foreign aid utilization to maximize its benefits for the entire population.

The government should prioritize projects and initiatives that promote economic growth and private investment, as these efforts can help create a more sustainable and prosperous future for the country.

In conclusion, this study highlights the importance of foreign aid in the economic development of Nepal and provides insights into the relationship between foreign aid, economic growth, and private investment. By implementing effective policies and strategies, the government can leverage foreign aid to foster economic growth and improve the lives of the Nepali people.