Summary B


ecause Nepal has a largely rural society, most people in the country still depend on agriculture as their major livelihood strategy. However, in part due to the domestic conflict there, agricultural performance was disappointing during past decades. With the peace process in place, it has become important to consider ways to stimulate agricultural growth and poverty reduction by making prudent public investments. This research mono- graph reviews government spending patterns and the political process of bud- geting under Nepal’s Ninth Five-Year Plan. Using different data sources and methodologies, we examine the impact of certain public rural investments. The use of diverse data sources and methods has yielded a range of estimates of the effect of access to agricultural public investments and reduced the risk of using a narrower set of results driven primarily by a particular data source or methodology. The convergence of results across methods and data sources con- tributes to the confidence with which we can draw conclusions. Overall, agricultural growth did not meet the expectations set forth in the Ninth Five-Year Plan over the period covered by our analysis. Large gains in poverty reduction have been largely driven by rural-to-urban migration and remittances. However, the underlying approach outlined in the Ninth Five- Year Plan, to reduce poverty by emphasizing the growth potential of rural farmers and the comparative advantages of Nepal’s unique agroecological environment, continues to have the potential to significantly improve rural welfare. The approach that seems most consistent with our results would be to increase the connectivity of these areas with rural roads, better integrat- ing farmers with markets and increasing their productive capacity by improv- ing their access to irrigation and high-quality extension advice. Our most robust empirical results illustrate the impact of rural roads. Using information based on different methodologies, we show that rural roads improve households’ welfare as measured by land values, consumption growth, poverty reduction, or agricultural income growth. We also show statistically signifi- cant impacts of irrigation using a hedonic model with two cross-sections of data. Our hedonic estimates of the effect of extension on land values in 2003/04 found that extension has a significant impact, while our estimates for 1995/96 suggest a positive yet statistically insignificant effect. However, the alterna- tive panel approach did not yield significant estimates of the impact of access to irrigation or extension services.


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