CHAPTER 1 Introduction
R
ecent gains in poverty reduction in Nepal have not been driven pri- marily by increased agricultural growth or productivity increases in the agricultural sector. The ongoing civil conflict has disrupted the
rural economy, resulting in significant rural-to-urban migration. Government spending has been diverted to address alternative objectives, namely defense and debt service. Because of the potential of the agricultural sector to con- tribute to poverty reduction, and with internal conflicts abating recently, it is critically important to evaluate the portfolios of public investment in the agricultural and rural sectors so as to better allocate the limited financial resources to achieve higher agricultural growth and poverty reduction in rural farm areas. Despite the importance of this issue, there have been few rigorous reviews of publicly funded infrastructure and extension services in Nepal.1 The purpose of such research is to assess the impact of access to different types of infrastructure and services. Although Nepal has undergone a major political change since 2007, since the country became a republic, lessons learned from the earlier period have continued to be relevant for the future because the basic public expenditure management system, at both the planning and the operational levels, remains intact. Hence, even in the current context, this study is expected to make a significant contribution to assisting policymakers in evaluating the different policy options available in the light of their impact on development.
Significant econometric challenges confront the estimation of the impact of rural public investments at the aggregate level over a long period using the approach of randomized experiments as advocated by the recent literature (Duflo 2006). Therefore, in practice, most studies use only data available from secondary sources and estimate only a single set of impact estimates for different types of public infrastructure and services based on one data
1 The World Bank conducted a qualitative assessment in 2000. This work, funded by the U.K. Department for International Development, was originally intended to be a quantitative exten- sion of this previous work.
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