Of Trade: Your Money (in) My Country

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fdi cartoonTrade is a wonderful aspect of modern economy; it enables us to consume products that we have no means of producing. There are many versions of trade: goods for goods, service for service, goods for service, and goods for money are a few examples. Like any rational process, trade also seeks the easiest way in. In order to promote trade it is essential to provide an environment that is supportive to the trading parties. A particular kind of trade that I would like to discuss today is “money for markets,” i.e. trading one party’s money for another party’s resources.

For a budding economy like Nepal, it is important to foster trade and to create an environment that is supportive of trade. Our consumers have acquired many new tastes, like cars, motorcycles, exotic foods, smart-phones and a host of other things. Amazingly, we consume all of these things without producing them. However, it is more than likely that we can also produce goods or services that other countries or economies may not be able to produce. Nepal has a diverse environment but due to our economy’s infantile stage, our production is mostly limited to products that cater to basic needs and necessities. With a stronger industrial base we can easily add value to our products, thereby, increasing the revenue of producers and providing satisfaction to consumers.

Our society is unique and there are distinctive values and ideals that, we, Nepalese pursue. However, globalization has molded our values with images that we have imported. We have also welcomed foreign influences in other, more direct, ways. Foreign investors have set up shop in Nepal to cater to the Nepali market’s needs and in the process have employed many Nepali workers as well. These workers are then introduced to new entrepreneurial skills and management techniques which in turn foster such qualities in our laborers as well. Foreign investments also require technology and skills that may not be available in the host country. In such cases, the investors can bring the required technology and manpower with them which help familiarize us with novel ideas.

Foreign investments are important to Nepal because we do not have enough funds with us to invest in large ventures. Our domestic saving is very low; this may be due to low income, high consumption, or a combination of both. Consumers can consume, save, or invest their disposable incomes, which is whatever part of their income that is remaining after paying taxes. A high rate of consumption without sufficient investment can lead to inflation. Similarly, low rates of saving may lead to high interest rates that could cause pressure on those who wish to invest.

For Nepal, foreign investment is one of the easiest ways to accumulate capital. This new capital will not only employ Nepalese laborers, it will also create avenues for Nepalese households to utilize their money. A wide selection of publicly traded companies might provide incentives for households to consume less and save or invest more. New resource-intensive industries will also help utilize our resources efficiently and provide opportunities for our country’s manpower which could help curb the current “brain drain.”

Protectionist means have been employed by many countries in the past but it was through the removal of such policies that these countries experienced growth. For example, India and China both saw massive growth once they liberally opened up for trade. Similarly, evidence shows that more open countries experience better growth than their closed counterparts. While there are many variables and constants taken into consideration while formulating these conclusions, it cannot be doubted that in order to remain an attractive site for foreign investment, Nepal needs to structure policies that make it as attractive as, if not, more than other countries.

Anurag Pant

About Anurag Pant

Anurag holds a Bachelors of Science in Economics and works as a Research Assistant at Samriddhi, the Prosperity Foundation. He also lectures on Economics at Xavier International College.

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