Technical change and the digital divide

Technical Change
Definition: Technical change, in economics, refers to advancements in knowledge and its
application to production processes, leading to new and improved products, services, and more
efficient ways of doing things. It signifies an increase in the efficiency of a product or process
that results in a greater output without a corresponding increase in input.
Key Aspects of Technical Change:
 Invention: The creation of entirely new products or processes (e.g., the light bulb, the
internet).
 Innovation: The application of inventions to create new or improved products, services, or
processes that add value and are often commercially successful (e.g., the smartphone, e-
commerce). Innovation also includes significant improvements to existing technologies.
 Diffusion: The spread and adoption of new technologies throughout an economy or society.
The rate and extent of diffusion are crucial for the overall impact of technical change.
 Automation: The use of technology to perform tasks with reduced human intervention,
often involving machinery, robotics, and computer systems.
 Digitalization: The increasing use of digital technologies and digitized information in various
aspects of society and the economy.
Examples of Technical Change:
 The printing press: Revolutionized the dissemination of information and knowledge.
 The steam engine: Powered the Industrial Revolution, transforming manufacturing and
transportation.
 Electricity: Enabled countless innovations and fundamentally changed how we live and
work.
 The internet: Transformed communication, commerce, education, and social interactions.
 Artificial intelligence (AI): Automating tasks, analyzing data, and creating new possibilities
across industries.
 Renewable energy technologies: Solar, wind, and hydro power are changing energy
production.
 Biotechnology: Leading to advancements in medicine, agriculture, and environmental
science.
Impact of Technical Change:
 Economic Growth: Drives productivity, creates new industries and jobs, and improves living
standards.
 Social Transformation: Alters social structures, relationships, and how people live, work,
and interact.
 Increased Efficiency: Allows for more output with fewer resources, potentially lowering
costs and prices.
 New Products and Services: Creates entirely new markets and fulfills previously unmet
needs.
 Job Displacement and Creation: While some jobs may become obsolete due to automation,
new jobs requiring different skills emerge.
 Globalization: Facilitates international trade, communication, and collaboration.

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2
 The Digital Divide

Definition: The digital divide refers to the gap between individuals, households, businesses, and
geographic areas with varying socioeconomic levels concerning both their access to modern
information and communication technologies (ICTs) and their ability to use the internet for a
wide range of activities. It's not just about having a device or an internet connection; it also
encompasses the disparities in internet access skills and digital literacy needed to effectively
utilize these technologies.
Forms of Digital Divide
 Global digital divide – Gap between developed and developing countries in terms of
ICTs penetration
 Urban rural digital divide- the disparity in technology access between urban and rural
population
 Economic digital divide- the different in access based on income levels affecting
affordability
 Educational digital divide- the inequality in digital literacy and access on digital online
education
 Gender digital divide- the gap in digital access between men and women especially in
patriarchal (male controlled) society
 Social and age based digital divide- different in technology usages based on age and
social background

Key Dimensions of the Digital Divide:

 Access Divide: Differences in the availability of physical access to ICTs, such as
computers, smartphones, and internet connectivity (broadband vs. dial-up, urban vs.
rural coverage). This is often influenced by income, infrastructure, and geographic
location.
 Usage Divide: Disparities in how people use the internet and digital technologies once
they have access. This includes the frequency, purpose, and sophistication of use. Some
may only use it for basic communication, while others leverage it for education,
economic opportunities, and civic engagement. This is heavily influenced by digital
literacy and skills.
 Quality of Use Divide: Differences in the ability to effectively and meaningfully utilize
digital technologies to achieve desired outcomes, such as accessing quality information,
engaging in online learning, or participating in the digital economy. This involves critical
thinking, information evaluation, and problem-solving skills in a digital environment.
Factors Contributing to the Digital Divide:
 Socioeconomic Status: Income inequality directly impacts the ability to afford devices,
internet subscriptions, and digital literacy training.
 Geographic Location: Rural and remote areas often lack the necessary infrastructure for
reliable and high-speed internet access.
 Education Level: Lower levels of education are often correlated with lower digital
literacy and skills.
 Age: Older individuals may face challenges in adopting and using new technologies.
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  Disability: Individuals with disabilities may encounter barriers in accessing and using
digital technologies.
Gender: In some regions, there is a significant digital gender gap, with fewer women having
access to and using the internet compared to men.

Causes of Digital Divide

 Infrastructure deficit- limited broadband penetration, weak mobile network
coverage, and lack of electricity in rural areas
 Economic Disparity- High costs of device and internet service making
tc=technology unaffordable for low -income groups
 Digital illiteracy- lack of awareness and training in using digital tools, especially
among marginalized communities
 Linguistic barriers- the dominance of English in digital platform limiting
accessibility for non-English speaker
 Gender discrimination- socio-cultural norms restricting women’s access to digital
tools in some areas
 Government policy gap- in adequate or slow implementation of digital inclusion
policies

Impact of the Digital Divide:

 Economic Inequality: Limited access to online job markets, digital commerce, and
opportunities for skill development hinders economic advancement for those on the
wrong side of the divide.
 Educational Disparities: Lack of access to online educational resources and remote
learning opportunities disadvantages students without connectivity.
 Social Exclusion: Reduced ability to participate in online communities, access social
services, and stay connected with family and friends can lead to isolation.
 Limited Access to Information and Services: Those without digital access miss out on
crucial information, online government services, healthcare platforms, and other
essential resources.
 Hindered Civic Engagement: Reduced participation in online democratic processes and
access to digital platforms for civic discourse.
 Widening Stratification: The digital divide can exacerbate existing social and economic
inequalities, creating deeper divisions within society.

The Interplay Between Technical Change and the Digital Divide

Technical change is a primary driver of the digital divide. As technology advances rapidly, new
devices, faster internet speeds, and more complex digital tools and platforms emerge. This
constant evolution can widen the gap between those who can afford to adopt and effectively
use these advancements and those who cannot.
Here's how technical change contributes to the digital divide:
 Increased Cost of Access: New and advanced technologies often come with higher price
tags, making them unaffordable for low-income individuals and households.

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  Evolving Skill Requirements: As technology becomes more sophisticated, the level of
digital literacy and skills required to participate fully in the digital world also increases.
Those who lack opportunities for training and skill development fall further behind.
 Infrastructure Disparities: The deployment of new and faster internet infrastructure (like
fiber optics or 5G) may initially focus on more densely populated or affluent areas,
leaving rural and underserved communities with slower or no access.
 Obsolescence of Older Technologies: As newer technologies become prevalent, support
for older systems may diminish, rendering existing equipment and skills less useful.
Conversely, the digital divide can also influence the trajectory and impact of technical change:
 Uneven Adoption Rates: If a significant portion of the population lacks access or skills,
the widespread adoption and the full economic and social benefits of new technologies
may be delayed or limited.
 Market Limitations: Businesses may be hesitant to develop products and services that
require advanced digital literacy or high-speed internet if a substantial segment of the
potential market cannot access them.
 Reinforcing Inequalities: The digital divide can create a feedback loop where those with
better access and skills can leverage new technologies to further their education,
careers, and economic opportunities, while those without remain marginalized.
Addressing the Digital Divide in the Context of Technical Change:
Bridging the digital divide in an era of rapid technical change requires multifaceted strategies,
including:
 Improving Access: Investing in infrastructure to expand affordable and reliable internet
access to underserved areas.
 Promoting Digital Literacy: Implementing programs to enhance digital skills across all
age groups and socioeconomic levels.
 Reducing Costs: Subsidizing the cost of devices and internet services for low-income
households.
 Ensuring Inclusivity: Designing technologies and digital platforms that are accessible to
individuals with disabilities and diverse skill levels.
 Policy and Regulation: Implementing policies that promote equitable access to digital
technologies and address the social implications of technical change.
 Community Initiatives: Supporting local programs that provide access, training, and
support for digital inclusion.
In conclusion, technical change is a powerful force driving progress but also poses challenges
related to the digital divide. Understanding the dynamics between these two concepts is crucial
for creating a more equitable and inclusive digital future where the benefits of technological
advancements are shared by all members of society.

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 Climate Change:
Climate change refers to the long run shift in temperature and weather pattern.
Changes in statistical distribution of weather pattern for an extended period of
time is climate change and it is a long-term phenomenon that leads significant
changes in regional or global temperature, wind patterns, rain fall and other
climate related measures. Climate change may be caused from various factors like
solar radiation, earth's orbit GHGs emissions, and many more. The causes of
climate change can be categorized as originating from natural factors and
originating from human activities. However, anthropogenic causes of climate
change and its economic effects would make our further discussions and we
discard natural causes of climate changes. Scientists differentiate the terms
'climate change' and 'global warming'. They consider that global warming is a
special case of climate change. Global warming refers to both higher average
temperature and extreme variations in weather conditions. Both represent the
environment, temperature and climate related anomalies. NASA defines- 'global
warming refers to long-term warming of the planet. Since 1880, average surface
temperature has risen about 1.1 C. A visual trend of temperature hike can be
observed in NASA website69. "Climate change refers to the broader range of
changes. These include rising sea; levels, shrinking mountain glaciers, accelerating
ice melt, shift in flower/plant blooming and so on. The consequences of global
warming and climate change are often similar and related to each other, which are
mainly caused by human beings burning fossil fuels and other human activities.
After industrial revolution and rapid economic growth, global temperature
increased at higher rate with more variations.
Causes of Climate Change and Global Warming
It is argued that human activities have been the major causes of global warming
and climate changes in recent years, a major cause has been emission of Green
House Gases (GHGs). According to climate change data, increase in anthropogenic
GHGs has been cause of more than 81 percent of total climate change between
1970 and 2010 in which, share of CO2, fossil fuel and industrial process increases
from 55 percent to 62 percent. Other human activities contributing more GHGs
include emission of following gases:
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i) Fluorinated Gas (F-GAS): F-Gases are estimated to be 23000 times more
powerful than CO2 causing global warming. These gases are used in
industrial purposes in refrigeration, air conditioning, heat pump
equipment, as solvents, aerosols, cosmetics and pharmaceutical industries
and so on. They constitute about 2 percent of anthropogenic GHGs.
ii) Nitrous Oxide (N20): N20 is primarily used in production of chemical
fertilizers which constitutes about 62 percent of anthropogenic GHGs.
iii) Methane (CH4): It is considered as second most GHG s. Human activities of
production and combustion of coal and natural gases are major sources of
CH4. Improper waste management, biomass burning and farming activities
also cause production of CH4.
iv) Carbon dioxide from Forestry and Other Land Use (CO 2 FOLU): Basically,
three types of land uses, cropland, forest land and grass land uses emit
carbon dioxide, methane and nitrous oxide. Such human activities
contribute about 13 percent of anthropogenic GHGs emissions.
v) CO2 Emission, Fossil Fuel and Industrial Processing include largest share of
CO2 emission. Energy supply includes largest share (47%) followed by
industry (30%) and transport (11%) construction sector also consists
considerable share of emissions indirectly.
In 2020, about 7.8 billion people live in this planet which accounts roughly 10
times the 800 million people estimated in year 1750. It is estimated that human
beings would cross 9 billion numbers by 2040. Such pattern of population growth
requires more food and other products. Increased demand necessitates more
outputs to produce, modernization and more industrialization. This will further
cause higher GHGs emission. Therefore, root causes of climate change and global
warming is false model of development and growth itself attributed to higher
population.
Economic Impacts
The economic activities like electricity and heat producing in industries and
buildings emit largest GHGs. Other major anthropogenic causes include forestry
and other land uses, industries and transportations. We link economic sectors
with impacts of climate changes. Many human activities are primarily responsible
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to destroy the eco-system of gases emissions in the nature. Land uses practices,
massive energy production, transportation and many of commercial and
household activities contribute GHGs emissions directly and indirectly.
Most influential GHGs for climate change include CO 2, N20, CH4 etc. which have
been major causes of global warming too. The immediate effects of climate
changes and global warming would be rise in average temperature of the earth,
large and unpredictable variations in wind patterns, rainfalls etc. Persistent
changes of these factors in global and regional environment would cause
ice/glacier meltdown, shrinking mountains, rise in sea levels and frequent natural
disasters like Tsunami, floods, landslides and so on. Such natural disorders would
eventually pose the problems in human lives Primarily in upper land mountains
and in lower costal lands. The effects would be more severe in low-income
countries as Pattern of crops growth and farming would be affected and their
tourism sector might collapse. Moreover, the low-income countries lag behind to
forecast and mitigate the adverse effects from climate change.
Global warming and climate change are caused by GHGs emission mainly due to
human activities (anthropogenic causes) and natural causes. Anthropogenic
causes are more critical for rapid environmental impacts. The major causes of
climate changes are power generation and uses, land uses, industrialization,
buildings construction and transportation, The effects of global warming and
climate changes are gradual and long lasting. Rise in average temperature,
changes in rainfall pattern and wind pattern are primary effects that led to glacier
meltdown, rising sea levels, floods, droughts, Tsunami and so on. Human lives and
economic activities are affected in many ways.
Anthropogenic Causes and Economic Impact of Climate Change
Activities responsible for climate change and emission of GHGs emission are:
Power Generation and Use, Industry, Land Use, Building, Transportation and other
use
Results: Global warming and climate Change

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Effects: • Rise in average temperature • Unpredictable Rainfalls 410 Change in
wind Pattern Glacier meltdown • Rising Sea Levels Floods/Droughts • Tsunami •
Ozone Layer depletion • Other environmental disorders
Impacts on Agriculture • Tourism • Difficult Human lives • Migration • Resource
Depletion • Conflict etc.
Effects of global warming
1. Climate change impacts rising sea levels. Average sea level around the world rose
about 8 inches (20 cm) in the past 100 years;
2. Coastal cities such as New York are already seeing an increased number of
flooding events and by 2050 many such cities may require seawalls to survive.
Estimates vary, but conservatively sea levels are expected to rise 1 to 4 feet (30 to
100 cm), enough to flood many small Pacific island states (Vanatu), famous beach
resorts (Hilton Head) and coastal cities (Bangkok, Boston).
3. From 1910 to till now 50% of glaciers has melted. If the Greenland ice cap and/or
the Antarctic ice shelf collapses, sea levels could rise by as much as 20 ft (6 m).
 Hurricanes and typhoons will increase in power, and flooding will become more
common
 Despite downpours in some places, mega droughts and prolonged heatwaves will
become common.
 Some areas may see complete ecological change.
 climate change impacts and warming will soon fundamentally change the forests;
in Europe, hundreds of plants species and creatures like butterfly, foxes, alpine
plants will disappear and will move thousands of miles. Penguins in Antarctica will
collapse by 90% or more. Ice animals like polar bear will disappearing.
 The productivity of rice, declines 10% with every 1⁰ C increase in temperature.
 Rising temperatures favour agricultural pests, diseases and disease vectors. As a
result, mosquito borne diseases like Zika virus, Malaria etc will spread.
If no action is taken, it would have harmful consequences to humanity and
biosphere.

Effects on development
1. Climate Change Hinders Economic Growth

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  Damage to infrastructure (roads, buildings, energy systems) due to floods,
storms, and rising sea levels increases repair costs and drains national
budgets.
 Agriculture, a backbone of many developing economies, suffers from reduced
yields, directly impacting GDP and employment.
2. Disproportionate Impact on Developing Countries
 While developed nations have contributed more to climate change,
developing countries are more vulnerable due to limited resources and
weaker infrastructure.
 These countries often lack the capacity to respond to and recover from
climate-related disasters.
3. Threats to Food and Water Security
 Unpredictable rainfall and extreme temperatures reduce agricultural
productivity.
 Water scarcity becomes more acute, particularly in arid and semi-arid
regions, affecting health, agriculture, and energy production.
4. Public Health Challenges
 Climate change increases the spread of diseases (e.g., malaria, dengue) and
worsens air and water quality, especially in densely populated urban areas.
 Environmental degradation leads to malnutrition and respiratory issues due
to poor air quality and limited access to clean water.
5. Obstacle to Achieving Sustainable Development Goals (SDGs)
o Climate change affects progress toward multiple SDGs, including: No
poverty (SDG 1) Zero hunger (SDG 2) Clean water and sanitation (SDG 6)
Climate action (SDG 13)
6. Vicious Cycle of Poverty and Environmental Degradation
 Poor communities often rely heavily on natural resources for survival,
leading to deforestation, overfishing, and land degradation.
 Environmental damage then worsens poverty, creating a cycle that's hard
to break without sustainable development strategies.
Conclusion

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Climate change and environmental sustainability are central to development issue
because they shape every aspect of a country's progress—economically, socially,
and environmentally.

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 Demographic Dividend

The term Demographic Dividend was coined by David Bloom. He emphasized the importance of
demography to economic growth. David Bloom attributed a large portion of the economic
growth of East Asia in 1965 to 1990 to the region’s working-age population, which led to
increase in productivity. The demographic dividend is a phenomenon that occurs when a
country experiences a significant shift in its age structure, primarily due to a decline in fertility
and mortality rates. This shift results in a larger proportion of the population being in the
working-age group (typically 15-64 years) compared to the dependent population (children
under 15 and adults over 64). This imbalance creates a window of opportunity for accelerated
economic growth and social development.

Here's a more detailed breakdown of the demographic dividend:

The Demographic Transition:

The demographic dividend is a phase within the broader demographic transition, a long-term
process that typically involves three main stages:

1. High birth rates and high death rates: In this initial stage, population growth is slow and
fluctuates due to disease, famine, and other factors. Both the young and old
dependency ratios are high.
2. High birth rates and declining death rates: As improvements in healthcare, sanitation,
and nutrition occur, death rates fall, leading to a rapid increase in population,
particularly among the young. The young dependency ratio increases significantly,
creating a "youth bulge."
3. Declining birth rates and low death rates: Fertility rates start to decline as families
choose to have fewer children due to factors like increased access to education,
urbanization, and the rising cost of raising children. The youth bulge from the previous
stage enters the working ages, leading to a larger working-age population relative to
dependents. This is when the first demographic dividend can be realized.
4. Low birth rates and low death rates: In this mature stage, population growth stabilizes
at a low level. Eventually, the large working-age cohort ages and the elderly dependency
ratio begins to rise, potentially leading to a second demographic dividend through
increased savings and investment for retirement.

Benefits Demographic Dividend:

1. Increased Labor Supply: A larger working-age population means more people are
available to participate in the labor force, boosting overall productivity and economic
output. This can also lead to increased female labor force participation as women have
fewer children to care for.
o Example: East Asian "tiger" economies like South Korea experienced rapid
economic growth partly due to a surge in their working-age population.
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 2. Increased Savings and Investment: With fewer dependents to support, individuals and
households can save a larger portion of their income. This increase in national savings
can be channeled into investments in infrastructure, capital goods, and other areas that
drive economic growth.
o Example: Japan's high savings rate during its demographic dividend period fueled
its industrial expansion.
3. Human Capital Development: Lower fertility rates allow parents to invest more
resources (time and money) in each child's education, health, and overall well-being.
This leads to a more skilled and productive future workforce.
o Example: Countries that prioritized education during their demographic transition saw
significant improvements in their workforce quality and innovation.
4. Increased Domestic Demand: A larger working-age population with rising incomes leads
to increased consumption of goods and services, stimulating domestic demand and
further economic activity.

As the relatively large working-age cohort ages and approaches retirement, a second
demographic dividend can potentially arise from:

 Increased Asset Accumulation: Individuals have a longer period to save for retirement,
leading to a larger pool of national savings and potential investment.
 Development of Financial Markets: The need to manage retirement savings can spur
the growth and sophistication of financial markets.
 Growth of Industries Catering to Older Adults: The increasing elderly population can
create new economic opportunities in healthcare, leisure, and other related sectors.

Conditions for Realizing the Demographic Dividend:

It's crucial to understand that the demographic dividend is not automatic. Countries need to
implement appropriate policies and make strategic investments to fully capitalize on this
window of opportunity. Key conditions include:

 Good Governance and Political Stability: A stable and predictable political environment is
essential for attracting investment and implementing long-term development strategies.
 Sound Economic Policies: Policies that promote job creation, encourage savings and
investment, and foster a favorable business environment are crucial.
 Investment in Education and Skills Development: Equipping the growing working-age
population with the necessary skills and knowledge is paramount for productivity and
competitiveness. This includes vocational training and higher education.
 Healthcare and Access to Family Planning: Ensuring a healthy population and providing
access to voluntary family planning services are vital for managing population growth and
improving overall well-being.
 Gender Equality and Women's Empowerment: Removing barriers to women's participation
in education and the workforce is essential for maximizing the economic potential of the
demographic dividend.

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  Job Creation: The economy must be able to generate sufficient productive employment
opportunities to absorb the growing labor force. Failure to do so can lead to unemployment
and social unrest, turning the "dividend" into a "burden."
 Infrastructure Development: Investing in transportation, communication, energy, and other
infrastructure is necessary to support economic growth and urbanization associated with a
larger working population.

Challenges in using the Demographic Dividend:

Several challenges can hinder a country's ability to fully realize its demographic dividend:

 Skills Mismatch: The skills of the working-age population may not align with the
demands of the labor market, leading to unemployment or underemployment.
 Informal Economy: A large informal sector with low wages, job insecurity, and limited
social protection can prevent the full economic benefits from being realized.
 Jobless Growth: Economic growth that does not generate sufficient employment
opportunities will fail to absorb the expanding labor force.
 Inequality: High levels of income and social inequality can limit access to education,
healthcare, and opportunities, preventing a significant portion of the population from
contributing fully to the economy.
 Health Issues: Poor health and the prevalence of communicable and non-communicable
diseases can reduce workforce productivity and increase healthcare costs.
 Rapid Urbanization: Unplanned and unmanaged urbanization can lead to strains on
infrastructure, housing shortages, and social problems.
 Aging Population (Eventually): While the demographic dividend provides a window of
opportunity, it is temporary. Eventually, the working-age population will age, and the
dependency ratio will rise again, presenting new challenges related to healthcare and
social security for the elderly.

In conclusion, the demographic dividend represents a significant opportunity for economic and
social progress. However, it requires proactive and strategic policy interventions and
investments in human capital, job creation, and good governance to transform a changing age
structure into tangible development outcomes. Failing to seize this window of opportunity can
result in missed economic growth and potential social challenges.

The Pattern of Demographic Shift in Nepal:

Structure of Economically active and dependent age group in Nepal (in Percent)
0-14 yrs 34.1 33.63 33.05 32.5 32.06 31.62 30.9 30.08 29.36 28.9 28.71
7 4 4
15-64 yrs 60.6 61.02 61.47 61.8 62.16 62.43 63.0 63.84 64.53 64.8 64.93
5 7 1 7
65+ yrs 5.18 5.34 5.48 5.63 5.79 5.95 6.05 6.09 6.11 6.2 6.36
Years 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

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  The working-age population of Nepal is rising and stood at 64.93% in 2023 compared
with 60.65% in 2013.
 The dependent population in 2023 is 35.07% (Child dependency 28.71 percent and old
age dependency6.36 percent) declining from 39.35 Percent in 2013.

Potential Benefits for Nepal:

If Nepal can effectively harness its demographic dividend, it could lead to several benefits:

 Increased Labor Supply: A larger working-age population can boost the labor force,
leading to increased productivity and economic output.
 Higher Savings and Investment: With fewer dependents, individuals and households
may have a greater capacity to save, leading to increased national savings and
investment in crucial sectors.
 Human Capital Development: Declining fertility can allow families to invest more
resources per child in education and health, leading to a more skilled and productive
future workforce.
 Economic Growth: The combination of a larger workforce, increased savings, and a more
skilled population can drive significant economic growth and improve per capita income.
 Increased Domestic Demand: A larger working population with higher incomes can lead
to increased demand for goods and services, further stimulating economic expansion.

Current Status and Future Outlook for Nepal:

Nepal's demographic window of opportunity is estimated to be open until around 2045-2047.

This means there is a limited time to implement effective policies and make strategic
investments to capitalize on this demographic shift. If these opportunities are missed, the aging
of the population will eventually lead to an increasing dependency ratio again.

Nepal is projected to become an aging society around 2028 and an aged society around 2054.
This rapid pace of aging underscores the urgency of harnessing the demographic dividend in the
coming years to ensure long-term socio-economic development and prosperity. Strategic
investments in youth, education, healthcare, and job creation are paramount to transforming
this demographic transition into a sustained period of economic growth and improved living
standards for all Nepalis.

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 Conflict, peace and development

Meaning of Conflict:
Conflict is a state of disagreement or clash between two opposites. It is discord caused by the
actual or perceived opposition of needs, values and interests. A conflict can be internal (within
oneself) or external (between two or more individuals). Conflict explains many aspects of social
life such as social disagreement, conflict of interests and fight between individuals, groups or
organizations.
In political terms, “conflict” can refer to wars, revolutions or other struggles, which may involve
use of force. Without proper social arrangement or resolution, conflict in social settings can
result in stress or tension amongst stakeholders.
Conflict arises “when two or more parties, with perceived incompatible goals seek to
undermine each other’s goal-seeking capability”.
A clash of interests, values, actions or directions often results in conflict. Conflict refers to
existence of that clash. Psychologically, conflict exists when reduction of one motivating
stimulus involves increase in another so that new adjustment is demanded. Even when we say
there is a potential conflict, we are implying that there is already a conflict of direction even
though a clash may not yet have occurred.
“Organizational conflict is disagreement between two or more organizational members or
groups arising from the fact that they must share scarce resources or work activities and/or
from the fact that they have different status, goals, values, or perceptions.”
Features of Conflict:
A state of conflict is characterized by the following features:
1. It arises by the different thought of two or more individuals or groups.
2. It arises from the difference in perception.
3. It is caused by different perceptions that different individuals hold about the same
object or goal. While A thinks a course of action is right, B does not hold the same
opinion. This leads to conflict of opinion on the same subject.
4. It usually arises because of scarcity of resources. When people compete for scarce
resources, they hold different views about how best they can utilize those resources to
achieve the goals.

Causes of Conflict:
Conflicts arise due to the following reasons:
1. Differences in perception:
Differences in perceptions, values and attitudes of individuals or groups over the same problem
lead to interpersonal or intergroup conflicts. For example, one group of individuals may want
that all employees use HP computers to maintain standardization while another group may
promote different brands of computers to maintain individuality. Differences in views lead to
conflicts.
2. Excessive competition:

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The resources (men, material, money, space etc.) are scarce and each unit wants maximum
share of it. Competition amongst units for maximum share of resources (The unfair share of the
resources) leads to conflict.
3. Differences in goals:
Different goals of individuals or groups lead to conflict amongst them. Differences in group goals
lead to conflict between the two. It may even affect the quality of products.
4. Interdependence of tasks:
When work is passed from one unit to the other, interdependence amongst units can lead to
conflict. Output of first unit becomes input of second unit. If first unit fails to process its work on
time, the second unit will have to wait and stay idle till it receives the process. This can cause
inter-group conflict.
5. Habit patterns:
Some people like to argue and debate. They enjoy conflict as a matter of habit. It acts as a
motivator for them to improve their performance.
6. Personal characteristics:
When group members differ in work attitudes, age, education, temperament and status levels,
the potential for inter-group, conflict is high.
7. Poor defined authority – responsibility relationships:
When authority and responsibility of individuals and groups is not properly defined, people do
not understand each other’s role. There is lack of consistency in work activities and
communication distortions take place. This becomes a source for inter-group conflict.
8. Misuse of power by certain group:
9. Discrimination between the groups:
10. Unfair distribution of income
11. Economic problems (resources gap) poverty, inequality, unemployment….

Consequences of Conflict:
It believes that conflict has the following positive consequences:
 High degree of cohesion
 Improvement in quality of decisions
 Emergence of leaders for betterment
 Response to change in positive way
 Increased productivity
 Releases stress
The negative consequences of conflict are as follows:
 Mental strain:
 Discontentment (Irritation)
 Communication breakdown:
 Resignation:
 Distorted perceptions:
 Competitive struggle:

17
Socio- economic effects of conflict in development
- losses of lives
- destruction of infrastructure/homelessness
- Losses of investment environment.
- Badly effects on sources of income.
- Unfavorable condition occurs in balance of payment.
- Reduction in GDP/ per capita/growth rate
- Brain drain
- Heavy cost should be spent
- Destruction of social values, humanity and harmony
-
Some facts of conflict
The economic impact of violence globally was $13.6 trillion in 2015 is 14.3 trillion in 2016
and 14.76 trillion dolor in 2017 and it was $19.1 trillion in 2023 in purchasing power parity
(PPP) terms. This is equivalent to 13.5% of the world's economic activity. This represents an
increase of 0.83% compared to the previous year

- Conflict costs of the global economy (about 13.5 percent of global GDP)
- In Ukraine more than 60000 people were killed and loss of cost was $486 billion—
roughly two and a half times Ukraine’s GDP.
- In Ukraine more than 60000 people were killed and loss of cost was $486 billion—
roughly two and a half times Ukraine’s GDP.
- In Russia The estimates indicate that 315,000 Russian soldiers have been killed and
$211 billion, approximately one-tenth of its GDP was the cost of conflict.
- 400000 were killed and loss of Economic cost (Syria 68% of GDP, Afghanistan63% of
GDP, Iraq 51%of GDP)
- In Sudan, the ongoing civil war has displaced over 12 million people
- Cost of maintaining peace keeping mission in the field is $8 billion per year.

The economic impact of violence globally in 2023 was a staggering $19.1 trillion in purchasing
power parity (PPP) terms. This is equivalent to 13.5% of the world's economic activity. This
represents an increase of 0.83% compared to the previous year.

 The war in Gaza has already had a significant economic impact, with the Palestinian
economy estimated to have lost $1.5 billion by the end of December 2023. Gaza's
economy shrank by 80% in the fourth quarter of 2023, and the cost of reconstruction is
estimated to range from $20 billion to $90 billion. The conflict is also projected to cost
Israel an estimated $400 billion in lost economic activity over the next decade.

It is important to note that conflict prevention is significantly more cost-effective than

conflict response. Analysis suggests that every $1 spent on development can save up to
$103 in future crisis response costs.

18
Human Costs

The human cost of conflict in 2023 and 2024 is equally devastating, marked by a surge in
fatalities, displacement, and immense suffering:

 Mass Displacement: Over 120 million people are currently forcibly displaced globally,
more than half of them within their own borders. The war in Ukraine alone has led to
nearly 6.9 million registered refugees and 3.7 million internally displaced persons,
representing nearly a quarter of Ukraine's pre-war population. In Gaza, 1.9 million
Palestinian residents have been displaced, many repeatedly.

 Humanitarian Crises: Conflicts disrupt access to essential resources such as food, water,
healthcare, and education. In Sudan, the ongoing civil war has displaced over 12 million
people and pushed half the population into acute food insecurity.

 Long-Term Impacts: Beyond immediate casualties and displacement, conflicts cause

long-term damage to societies, including psychological trauma, the destruction of
infrastructure, environmental contamination, and the hindering of development.
Millions of people in conflict-affected countries face long-term consequences, making
safe return to their homes impossible due to weapon contamination.

In Nepal During arm conflict and civil war

- 13246 were killed
- 1300 were missing
- Nearly 4,00,000 rural family were internally displaced
- Private investment rate has declined from 15.4 to 12.6%
- Development expenditure decline at a rate of 4.2(in 2004) compare with
10.4% (in 1991-2001) it was only 6% of GDP in 2004.
Sources: Reports of United Nations Human Right 2012
According to a study of prof Hari Bansa Jha
- 17828 people were killed
- 5800 were disabled
- 25000 were orphaned
- 9000 were widowed.
Role player for peace management and development.
- Role of Local community leader
- Role of the state
- Role of National and international actors/leader
Role of Institutions and organizations. NGOs/ INGOs

19
 Gender and Development
Gender plays a foundational and multifaceted role in the development of societies worldwide.
It's not merely a matter of fairness or human rights, but a critical factor influencing economic
progress, social well-being, and overall sustainability. Ignoring gender dynamics hinders
development, while actively addressing gender inequalities accelerates progress for everyone.
Let's delve into the intricate ways gender shapes development:

1. Economic Development and Growth

 Labor Force Participation: When women are excluded from or face barriers in the labor
market, a significant portion of human capital remains untapped. Equal opportunities for
women to participate in paid employment, entrepreneurship, and leadership roles boost
productivity, innovation, and economic diversification. Studies consistently show a
positive correlation between gender equality and GDP growth.

 Agricultural Productivity: In many developing countries, women are key players in

agriculture, yet they often lack equal access to land, credit, technology, and training.
Bridging this gender gap can significantly increase agricultural output, improve food
security, and reduce poverty.

 Entrepreneurship: Empowering women economically through entrepreneurship creates

jobs, generates income, and fosters economic resilience at the household and
community levels. Women entrepreneurs often reinvest a larger proportion of their
earnings in their families' health and education, creating a multiplier effect.

 Poverty Reduction: Gender inequality exacerbates poverty, particularly for women and
their children. Providing women with equal access to resources, education, and
employment opportunities is a direct pathway to poverty reduction and improved living
standards for all.

2. Social Development and Well-being

 Education: Educating girls and women has profound intergenerational impacts. Educated
women tend to have healthier families, delay marriage and childbirth, have fewer
children, and are more likely to send their own children to school. This leads to improved
health outcomes, reduced population growth, and enhanced human capital
development.

 Health: Gender norms and inequalities significantly influence health outcomes for both
women and men. Women often face barriers to accessing healthcare services due to
cultural restrictions, lack of autonomy, or financial constraints. Addressing these
inequalities improves women's health, reduces maternal mortality, and enhances overall

20
 public health. Harmful traditional practices like female genital mutilation also have
severe health consequences. Conversely, rigid gender norms can also negatively impact
men's health-seeking behavior.

 Violence Against Women and Girls (VAWG): VAWG is a major obstacle to development,
impacting women's physical and mental health, limiting their participation in education
and employment, and undermining social cohesion. Addressing VAWG requires
challenging harmful gender norms, strengthening legal frameworks, and providing
support services for survivors.

 Social Inclusion and Equity: Development should be inclusive and benefit all members
of society. Gender inequality intersects with other forms of discrimination based on
factors like caste, ethnicity, disability, and sexual orientation. A gender-sensitive
approach to development ensures that the needs and perspectives of all marginalized
groups are considered and addressed.

3. Governance and Political Participation

 Decision-making: When women are underrepresented in political and decision-making

bodies, their perspectives and priorities are often overlooked in policy formulation and
implementation. Increasing women's participation in governance leads to more inclusive
and equitable policies that better reflect the needs of the entire population.

 Peace and Security: Gender plays a crucial role in conflict and peacebuilding. Women's
participation in peace processes has been shown to lead to more sustainable and
inclusive peace agreements. Addressing gender dynamics in conflict situations is
essential for preventing violence and building resilient societies.

 Accountability and Transparency: Greater gender balance in leadership and public

institutions can enhance accountability and transparency, as women often bring
different perspectives and priorities to governance.

4. Environmental Sustainability

 Resource Management: In many communities, women play a vital role in managing

natural resources. Recognizing their knowledge and involving them in environmental
decision-making can lead to more sustainable resource management practices and
better conservation outcomes.

 Climate Change Adaptation: Gender inequalities can exacerbate the impacts of climate
change, as women often have less access to resources and information needed to adapt.
Gender-responsive climate action ensures that adaptation strategies address the specific
vulnerabilities and capacities of women and men.

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Gender Mainstreaming as a Strategy

Recognizing the pervasive influence of gender, the concept of gender mainstreaming has
become a central strategy in development. It involves integrating a gender perspective into the
design, implementation, monitoring, and evaluation of all policies, programs, and projects. This
ensures that development initiatives do not perpetuate or exacerbate gender inequalities but
instead actively promote gender equality and women's empowerment.

In conclusion, gender is not a separate sector of development but a cross-cutting dimension

that influences all aspects of it. Addressing gender inequalities is not only a matter of rights but
a fundamental prerequisite for achieving sustainable, inclusive, and equitable development that
benefits all members of society in Bharatpur, Nepal, and across the globe.

Gender and Development

"Gender and Development" (GAD) is an approach that critically examines the socially
constructed differences between men and women and how these differences shape
development processes and outcomes. It moves beyond simply focusing on women as a
separate category and instead analyzes the power relations between genders and how these
relations influence access to resources, opportunities, and decision-making.

Here's a detailed breakdown of key aspects of the Gender in Development approach:

1. Shifting from "Women in Development" (WID):

GID emerged as a critical response to the earlier "Women in Development" approach, which
primarily focused on integrating women into existing development frameworks. While WID
brought attention to women's roles, it often:

 Assumed a universal experience of "womanhood," neglecting differences based on

class, race, ethnicity, and other social categories.

 Focused on women as a "problem" to be solved or a "resource" to be utilized for

development, rather than analyzing the systemic inequalities they face.

 Often adopted a top-down approach, failing to address the root causes of gender
inequality embedded in social structures and norms.

 Could inadvertently reinforce existing gender roles by focusing on women's traditional

activities without challenging the unequal division of labor.

2. Core Principles of Gender in Development:

GID takes a more holistic and transformative approach based on the following principles:

22
  Focus on Gender Relations: GID analyzes the socially constructed roles, responsibilities,
power dynamics, and expectations associated with being male or female. It recognizes
that gender is relational and that the status of women is often linked to the status of
men.

 Social Construction of Gender: GID emphasizes that gender is not biological sex but
rather a set of norms, behaviors, and identities that are learned and vary across cultures
and time periods. This understanding highlights the potential for change.

 Challenging Gender Roles and Stereotypes: GID aims to identify and challenge harmful
gender stereotypes and discriminatory social norms that limit the opportunities and
potential of both women and men.

 Empowerment: A central goal of GID is the empowerment of women (and other

marginalized genders) to gain control over their lives, resources, and decision-making
processes at all levels – individual, household, community, and political.

 Equity and Equality: GID distinguishes between gender equity (fairness and justice in the
distribution of resources and responsibilities, often requiring specific measures to
compensate for historical disadvantages) and gender equality (equal rights,
opportunities, and treatment for all genders). Equity is often seen as a pathway to
achieving equality.

 Intersectionality: GID recognizes that gender intersects with other social categories like
class, race, ethnicity, caste, disability, sexual orientation, and age, creating unique
experiences of inequality and discrimination. Development interventions need to
consider these intersecting identities.

 Participation and Inclusion: GID emphasizes the importance of the full and meaningful
participation of all genders in the design, implementation, monitoring, and evaluation of
development policies and programs.

 Sustainability: GID argues that development that does not address gender inequalities is
not truly sustainable, as it fails to utilize the full potential of half the population and can
exacerbate social and economic vulnerabilities.

3. Key Areas of Focus in Gender in Development:

GID analysis and interventions often focus on the following critical areas:

 Economic Empowerment: Addressing unequal access to land, credit, employment,

education, training, and technology for women. Promoting women's entrepreneurship
and equal pay for equal work.

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  Social Empowerment: Challenging harmful traditional practices, addressing gender-
based violence, improving women's health and access to healthcare, and promoting
equal access to education at all levels.

 Political Empowerment: Increasing women's participation in decision-making bodies at

all levels of governance, from local councils to national parliaments. Ensuring women's
voices are heard in policy formulation.

 Legal and Human Rights: Advocating for legal reforms that ensure gender equality and
protect the human rights of all genders. Addressing discriminatory laws and practices.

 Education and Awareness: Promoting gender-sensitive education that challenges

stereotypes and fosters critical thinking about gender roles. Raising awareness about
gender equality issues within communities.

 Division of Labor: Examining and challenging the unequal distribution of paid and
unpaid work between genders, including domestic responsibilities and care work.
Promoting shared responsibility within households.

 Access to and Control Over Resources: Analyzing and addressing gender disparities in
access to and control over natural resources, financial resources, information, and
technology.

4. Gender Mainstreaming as a Strategy:

A key strategy for implementing GID principles is gender mainstreaming. This involves
integrating a gender perspective into the design, implementation, monitoring, and evaluation of
all policies, programs, and projects across all sectors of development. It's not about creating
separate women's projects but about ensuring that gender considerations are central to all
development efforts.

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 Globalization

Globalization is a multifaceted term that describes the increasing interconnectedness and

interdependence of countries worldwide through the exchange of goods, services, information,
and ideas. It's a complex phenomenon driven by a combination of economic, technological,
socio-cultural, and political factors.

Views of economist

 “The world without border,” Prof Brown.

 “Economic openness and weaking of economic border wall”.
 Globalization is the increasing integration of national economy into global market
 According to the World bank and IMF Globalization is trade flows, financial Flows, and extends
to the flows of technology, information and service across national borders.
 Kenichi Obeme, “It is a borderless world “

Forms of Globalization
1. Economic Globalization:

 Increased International Trade: This involves a greater flow of goods and services across
national borders, often facilitated by reduced tariffs and trade agreements. You see
products from all corners of the world in your local markets, a direct result of this.

 Global Financial Markets: Capital flows more freely between countries through
investments, loans, and the activities of multinational corporations. The stock markets
and financial institutions are increasingly linked globally.

 Multinational Corporations (MNCs): These companies operate in multiple countries,

often having production facilities and offices worldwide. Think of major brands like Coca-
Cola, Samsung, and Toyota, which have a presence in almost every nation.

 Global Supply Chains: Production processes are often fragmented across different
countries, with each specializing in a particular stage of manufacturing. Your
smartphone, for instance, likely has components sourced and assembled in various
countries.

2. Technological Globalization:

 Advancements in Communication: The internet, mobile phones, and other digital

technologies have drastically reduced communication costs and made instant global
interaction possible. You can connect with people across the globe in real-time.

 Transportation Innovations: Faster and more efficient modes of transport, like container
ships and air travel, have made it easier and cheaper to move goods and people
internationally. This underpins the global supply chains mentioned earlier.
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  Spread of Technology: New technologies and innovations diffuse rapidly across borders,
influencing industries and societies worldwide.

3. Socio-cultural Globalization:

 Cultural Exchange: Globalization leads to a greater exchange of ideas, values, and

traditions between different cultures. You might see the popularity of international
cuisines, music, and fashion.

 Migration and Movement of People: Increased travel and migration patterns lead to
more diverse societies and greater intercultural interaction. Nepal itself is experiencing
this with people coming for work, tourism, and other reasons.

 Spread of Global Brands and Consumer Culture: Global brands often become influential
in shaping consumer preferences and lifestyles across different countries.

4. Political Globalization:

 International Organizations: The rise of international organizations like the United

Nations (UN), the World Trade Organization (WTO), and the International Monetary
Fund (IMF) plays a role in global governance and cooperation.

 International Agreements and Treaties: Countries increasingly engage in agreements on

trade, human rights, environmental protection, and other global issues.

 Influence of Global Political Norms: Ideas about democracy, human rights, and the rule
of law are increasingly discussed and promoted globally.

Key Characteristics of Globalization:

 Increased Interdependence: Nations become more reliant on each other for economic
stability, resources, and markets.

 Time-Space Compression: The feeling that the world is "smaller" and distances are less
significant due to rapid communication and transportation.

 Growing Awareness of Global Issues: Problems like climate change, pandemics, and
economic crises are recognized as interconnected and requiring global cooperation.

Impacts of Globalization:

Globalization has a wide range of impacts, both positive and negative, which are subjects of
ongoing debate:

Potential Benefits:

26
  Economic Growth: Increased trade and investment can lead to higher economic output
and job creation in some sectors.

 Poverty Reduction: Some argue that globalization has helped lift millions out of poverty,
particularly in developing countries.

 Greater Choice and Lower Prices: Consumers often benefit from a wider variety of
goods and services at more competitive prices.

 Spread of Innovation and Technology: Globalization can accelerate the diffusion of new
technologies and best practices.

 Cultural Exchange and Understanding: Exposure to different cultures can foster greater
tolerance and understanding.

Potential Drawbacks:

 Increased Competition and Job Displacement: Domestic industries may face intense
competition from foreign companies, leading to job losses in some sectors.

 Economic Inequality: The benefits of globalization may not be evenly distributed,

potentially widening the gap between rich and poor both within and between countries.

 Exploitation of Labor and Resources: The pursuit of lower production costs can
sometimes lead to the exploitation of workers and environmental degradation in
developing countries.

 Cultural Homogenization: The dominance of certain global cultures and brands can
threaten local traditions and identities.

 Increased Economic Vulnerability: Interconnected economies can be more susceptible

to global economic shocks and crises.

In essence, globalization is a powerful and ongoing process that is reshaping the world in
profound ways. It presents both opportunities and challenges for individuals, businesses, and
nations, and its effects continue to be debated and analyzed across various fields. Globalization
in developing countries is a sword with double blades. If it is handled well, it preserved our
economy , otherwise it disrupts itself. Here, in Nepal, we can observe the influence of
globalization in everything from the clothes people wear to the food they eat and the
technologies they use.

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 Economic Liberalization: A Detailed Explanation
Economic liberalization refers to the process of reducing government interventions and
restrictions in an economy in favor of greater participation of private entities. It typically
involves measures to open up the economy to international markets, encourage private
enterprise, promote competition, and reduce the role of the state in economic activities.
In practice, it aims to make economies more market-oriented and expand the role of private and
foreign investment.
Key Features of Economic Liberalization
1. Deregulation:
o Removal of government-imposed restrictions on industries and businesses.
o Encouraging free-market competition without heavy government control.
2. Reduction in Government Control:
o Decreasing the role of public sector enterprises.
o Encouraging privatization of state-owned industries.
3. Trade Liberalization:
o Lowering tariffs, import duties, and quotas.
o Opening the economy to foreign goods and services.
4. Financial Sector Reforms:
o Liberalizing interest rates.
o Reducing the monopoly of state-run banks.
o Allowing foreign banks and investment institutions.
5. Tax Reforms:
o Simplifying the tax system to make it more transparent and efficient.
o Reducing high tax rates to encourage investment.
6. Foreign Investment Policies:
o Allowing foreign direct investment (FDI) and portfolio investment.
o Easing regulations for multinational corporations to operate in the domestic
economy.
7. Privatization:
o Selling off public sector enterprises to private players.
o Reducing fiscal burden on the government.
8. Labor Market Reforms:
o Making hiring and firing more flexible.
o Reducing rigid labor laws that inhibit business efficiency.
Objectives of Economic Liberalization
 To accelerate economic growth and industrialization.
 increase economic efficiency and productivity.
 To attract foreign investment and technology to increase employment opportunities.
 Encourage private sector and foreign investment.
 To integrate the domestic economy with the global economy.
 To encourage competition and innovation.
 To reduce fiscal deficits, government debt and promote exports.
 To create more employment opportunities through private sector growth.
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 Why Economic Liberalization Happens
Countries often adopt liberalization policies in response to:
 Economic crises (e.g., balance of payments issues, inflation, low growth).
 External pressure from international institutions like the International Monetary Fund
(IMF) and the World Bank.
 Internal realization that protectionist policies have led to inefficiency and stagnation.
 Desire for globalization, seeking to benefit from trade, technology transfer, and
investment flows.
Before the 1990s, Nepal followed a state-controlled, protectionist economy, where the
government heavily regulated trade, investment, and industry.
However, the economy was stagnating, poverty levels were high, and there was growing fiscal
imbalance. Several global and domestic factors influenced Nepal’s move towards liberalization:
 Global trend of liberalization (e.g., India’s reforms in 1991, the fall of communism).
 Pressure from international organizations like the World Bank and IMF.
 Internal economic crises: slow growth, low industrialization, and high dependency on
foreign aid.
 Democratic movement of 1990: Restoration of democracy created political openness
and new economic aspirations.
Thus, in the early 1990s, Nepal officially started liberalizing its economy.
Advantages of Economic Liberalization
 Faster economic growth.
 Increased efficiency and productivity.
 Enhanced global competitiveness.
 Greater consumer choice.
 Improved infrastructure through private investment.
 Increased foreign exchange reserves through FDI.
Disadvantages and Criticism
 Widening income inequality.
 Loss of jobs in uncompetitive sectors.
 Increased vulnerability to global market fluctuations.
 Potential exploitation by multinational corporations.
 Environmental degradation if regulations are weakened.
 Reduced sovereignty over economic policy.
Conclusion
Economic liberalization is not a one-size-fits-all solution. It can drive growth and prosperity if
managed carefully, but it can also create new risks and inequalities. Therefore, countries usually
combine liberalization with social safety nets, regulatory frameworks, and institution-building
to maximize benefits and minimize harms.
Economic Liberalization in Nepal

Why Nepal Adopted Liberalization

Major Policies and Measures of Economic Liberalization in Nepal
1. Industrial Policy Reforms (1992):

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 o Encouraged private sector investment.
o Simplified procedures for setting up industries.
o Removed licensing requirements for many industries.
o Promoted foreign investment, technology transfer, and export-oriented
industries.
2. Foreign Investment and Technology Transfer Act (1992):
o Opened doors to Foreign Direct Investment (FDI).
o Allowed foreign companies to have up to 100% ownership in certain sectors.
o Offered incentives like tax holidays, duty-free import of machinery, and profit
repatriation.
3. Trade Policy Reforms (1992):
o Shifted from a protectionist trade policy to an open and liberalized trade regime.
o Reduced import duties and abolished many quantitative restrictions.
o Encouraged export promotion through incentives and easier procedures.
4. Financial Sector Reforms:
o Privatized state-owned banks (like Nepal Bank Limited and Rastriya Banijya
Bank).
o Liberalized interest rates and allowed private and foreign banks to operate.
o Established the Nepal Rastra Bank Act (2002), giving more autonomy to the
central bank.
o Encouraged the development of capital markets (e.g., Nepal Stock Exchange -
NEPSE).
5. Privatization Program:
o Introduced a Privatization Act (1994).
o Privatized several public enterprises (e.g., Nepal Airlines, Nepal Telecom
partially).
o Aimed to reduce the financial burden on the government and improve efficiency.
6. Membership in International Organizations:
o Nepal joined the World Trade Organization (WTO) in 2004.
o It aligned its trade rules and regulations with global standards, further pushing
liberalization.
Impacts of Economic Liberalization on Nepal
Positive Impacts:
 Increased Private Sector Activity:
Private businesses expanded rapidly, particularly in sectors like banking,
telecommunications, tourism, and education.
 Rise in Foreign Investment:
Sectors like hydropower, telecommunications (e.g., Ncell), and hotels saw significant
foreign participation.
 Growth of Financial Sector:
Huge growth in the number of banks, insurance companies, and cooperatives.
 Trade Expansion:
Exports of carpets, garments, and handicrafts increased in the 1990s.

30
  Service Sector Growth:
Tourism, education, and health services expanded dramatically.
Negative Impacts / Challenges:
 Widening Inequality:
Growth was concentrated in urban areas; rural regions were largely left behind.
 Dependence on Imports:
Trade liberalization led to a surge in imports, worsening the trade deficit.
 Weak Industrial Base:
Despite policies, Nepal failed to industrialize significantly due to poor infrastructure,
political instability, and small domestic markets.
 Financial Sector Vulnerability:
Rapid growth of financial institutions without strong regulation led to financial instability
at times.
 Privatization Issues:
Many privatized companies failed to operate efficiently or ended up shutting down.
 Brain Drain and Labor Migration:
With limited high-quality jobs at home, many skilled workers migrated abroad.
Current Status
 Nepal's economy is still relatively underdeveloped compared to other South Asian
countries.
 Remittances (from Nepalis working abroad) have become the backbone of the economy
(over 25% of GDP).
 Tourism and services have become major contributors to GDP.
 Industrialization remains sluggish.
 Political instability and governance issues continue to hinder the full benefits of
liberalization.
Conclusion
Nepal's policy of economic liberalization, started in the early 1990s, significantly changed the
structure of the economy, fostering private sector growth, foreign investment, and integration
with the world economy.
However, the benefits have been uneven and limited by internal challenges like political
instability, weak institutions, poor infrastructure, and dependency on remittances rather than
sustainable industrial development.
For Nepal, future liberalization must be coupled with:
 Institutional strengthening,
 Infrastructure development,
 Promotion of competitive industries,
 Inclusive growth strategies to reduce inequality.

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 Privatization

Privatization means transferring ownership of a business, enterprise, or service from the

government (public sector) to private individuals or companies (private sector). According to
world Bank 1998 “Privatization is broadly defined as increased private sector participations in
the management and ownership of activities and States control and own by the government
Cook and Kirk Patrick “Privatization firstly refers to a change of ownership from public sector to
private Entrepreneur through the process of the nationalization or secondly privatization can be
brought by alloying the private sector to the inter into the areas now protected for the public
sector and Thali fried rice can be introduced by way of contracting out the service and if it is
while retaining the ownership with the government
According to privatization act privatization means involving private sector in the management of
the enterprises or to sale or to leave it or to transfer government ownership into public
ownership or an act to Infuse participation by any means either wholly or partly of private
sector or of employees or all desirous groups.

The idea behind privatization is often to:

 Make services or businesses more efficient
 Reduce government burden
 Encourage competition
 Generate revenue for the state
 Improve product or service quality
Privatization can happen in several ways, like selling government shares to private investors, full
transfer of ownership, or allowing private companies to run traditionally government-operated
sectors (like electricity, airlines, banks).

Privatization in Nepal
In Nepal, privatization started more actively in the early 1990s. The Privatization Act, 1994
provided a legal framework for it.
Nepal began privatizing because:
 Government-run enterprises were often inefficient and loss-making.
 The country was moving towards a market-oriented economy after years of a controlled
system.
 It needed foreign investment and private sector growth for economic development.
Some key facts:
 Major industries like Nepal Bank Limited, Nepal Airlines Corporation, and Rastriya
Banijya Bank were targeted for privatization or reform.
 Agriculture, tourism, energy, telecommunications, and manufacturing sectors also saw
privatization initiatives.
 However, privatization in Nepal has faced challenges:
o Political instability slowed the process.
o Lack of transparency and public trust issues arose.

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 o Some privatized companies failed instead of improving.
o Labor unions and employees often protested.
Example:
 Nepal Telecommunication Corporation (NTC) was partially privatized but still remains
largely under government control.
 Bhrikuti Paper Factory and Nepal Tea Development Corporation were fully privatized
but struggled to survive in the market afterward.

In short:
Privatization in Nepal was meant to boost economic growth and reduce government nefficiency,
but it has had mixed results because of poor management, lack of clear policies, and political
factors.

positive and negative effects of privatization

positive effects of privatization

Increased Efficiency:
Private companies usually have stronger profit motives, pushing them to operate more
efficiently and eliminate waste.
1. Better Quality of Services:
Competition between private firms often leads to improved quality of goods and
services.
2. Innovation and Investment:
Privatization can stimulate more innovation, as private companies invest in new
technologies and practices to stay competitive.
3. Reduced Fiscal Burden on Governments:
Selling off state-owned enterprises can relieve governments of the financial strain of
running inefficient businesses.
4. Higher Revenue for Governments (Short Term):
Governments often receive significant revenue from the sale of public assets, which can
be used to pay off debt or invest elsewhere.
5. Expanded Market Opportunities:
Privatized firms can expand into international markets more freely than government-
owned ones.

Negative Effects of Privatization:

1. Job Losses:
Efficiency drives can result in layoffs, as privatized firms streamline their operations.
2. Widening Inequality:
Services that were once universally affordable may become too expensive for lower-
income groups after privatization.
3. Focus on Profit Over Public Interest:
Essential services (like healthcare, water, or education) might prioritize profits, possibly
neglecting accessibility or quality for disadvantaged groups.

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 4. Loss of Public Control:
Governments lose direct control over important sectors, making it harder to ensure that
national interests are protected.
Monopolies:
Privatization without proper regulation can turn public monopolies into private monopolies,
where one company dominates a sector without competition — sometimes leading to price
gouging or poor service. Privatization often favored a few elite groups ("crony privatization")

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 Black economy

The black economy is a segment of a country’s economic activities that derived from sources
that fall outside of the country’s rule and regulations regarding commerce. The activities can be
either legal or illegal depending on what goods and services are involved.
A large part of market goods and products comes from the black/underground economy. Much
of the money in circulation has their origin in the activities of underground economic activities.
The underground economy coexists with the official economy and between them are very tight
correlations. It exists in most countries in the world and generally has the same causes:
inadequate tax systems, excessive state involvement in the economy and the lack of
coordination in establishing economic policies.

The concept of underground economy

For a better understanding of this phenomenon, in this study we tried to clarify the concept of
shadow economy, major causes and characteristics of this phenomenon and finally, implications
on the official economy. In the economic literature it can be find a lot of expression for this type
of economy. It was called underground economy, invisible, black, gray, ghost, unofficial or
informal. Regardless of how it was called, this economy has been understood by all authors
doing business as a whole held in violation of social norms and economic laws, aiming to obtain
income that cannot be controlled by the state.
The structure of the underground economy includes informal economic reporting system that
ensures satisfaction of the profit interests of the economic system due to imperfections.
Underground production represents the area of production activities that are not directly
observed due to: economic reasons as activities carried out with the deliberate desire to avoid
taxes and social contributions in favor of employees or, also, to avoid observing law provisions
concerning minimum wages, the number of work hours, job safety, etc.; and, statistical reasons
as production activities that are not registered due to failure to fill out administrative forms or
statistics questionnaires because of a lack of sensitivity to statistics and/or shortcomings in the
statistics system, difficulty in grasping the changes of a rapidly evolving productive system
characterized by small productive activities that are often not detectable with the traditional
survey techniques.

Black market is a place where you can sell and buy items that are restricted or forbidden by the
law. For example, drugs, weapons or pornographic materials. Selling and buying those items or
services is against the law, that’s why sellers often pretend they have another, legal business
and you need to gain their trust before you can buy anything from them.

The black market is the 'market' where goods and services are sold in a way that is illegal or for
goods and services that are illegal. Obviously, it isn't a market in the physical sense of the word,
but rather, a market meaning the collective transactions that take place between buyers and
sellers.
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Tabel 1. Types of economic activities involved by underground economy

There are some obvious goods and services that flow through their own black market: guns,
drugs, some antiques and artifacts, and even human trafficking. But, there are also black
markets for things that are legal to own, but buyers and sellers just want to avoid either high
taxes or any record of them buying something.
A very clear example of the black market would be something like illegal drugs, arsenic, or
nuclear material. Those are all items that are illegal for individuals to own, and illegal for
individuals to sell.
The black economy may be present in all sectors of the economy, which can generate extremely
difficult situations for the general development of the economy itself. The main causes of the
underground economy are considered:
 Excessive taxation - tax system has been identified as one of the main factors for the
emergence and development of the economy;
 Government regulations for certain types of activities - increase in the intensity of legal
regulations, often measured by their number, reduces freedom of action of individuals
employed in the formal economy, thus leading to a significant increase in labor cost in
the formal economy, costs it is the true incentive to work in the informal economy;
 Weak legal system - as long as it works on the principle of rule of law leaves enough
loopholes to get away with specific operating businesses in the economy.
 Fear of losing some welfare benefits provided by the state;
 Much flexibility in the use of labor;
The economic literature distinguishes three types of causes of the shadow economy

(1) The burden of direct and indirect taxation, both actual and perceived: a rising burden of
taxation provides a strong incentive to work in the shadow economy;
(2) The burden of regulation as proxy for all other state activities. It is assumed that increases in
the burden of regulation give a strong incentive to enter the shadow economy;
(3) The tax morality (citizens‘ attitudes toward the state), which describes the readiness of
individuals (at least partly) to leave their official occupations and enter the shadow economy: it
is assumed that a declining tax morality tends to increase the size of the shadow economy.

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The informal economy is defined under various names in the literature, indicating various
aspects of it: underground economy, informal economy, unobserved economy, shadow
economy, second economy, parallel economy, hidden economy, illegal economy, unrecorded
economy, marginal economy, unreported economy, unofficial economy, dual economy etc. This
variation makes it difficult to develop a common definition. In academic studies the term
“underground economy” is considered as the most comprehensive definition, as it includes the
illegality. Informal economy refers to all economic transactions and activities that are entered
in official records, cannot be documented through legal documents and are not taken into
account in calculations of Gross Domestic Product (GDP). underground economy can be
classified under three groups: Informal sector, parallel economy and black market economy.

In the figure given in below, C D E parts are the different parts of underground (black) economy
on which C is part which is recorded in official GDP, D is the miss part of official record but can
contribute to GDP. The E part is the illegal part of the economy.

The shadow economy includes all market-based legal production of goods and services that are
deliberately concealed from public authorities for the following four reasons:
 To avoid payment of income, value added or other taxes,
 To avoid payment of social security contributions,
 To avoid having to meet certain legal labor market standards, such as minimum wages,
maximum working hours, safety standards, etc.,
 To avoid complying with certain administrative obligations, such as completing statistical
questionnaires or other administrative forms.
Sources of black money—income from crime, girls and child trafficking, smuggling, drugs arm
trade, prostitutions, sexual exploitation, corruption, child and forced labour.

Causes and effects of black Economy

Causes of black economy

 Heavier tax system and social security contribution.

 Permits and licensing system

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  Prohibition – gambling , production of illicit liquor, smuggling
 Increase in public expenditure
 Funding for political party and leader
 Inflation leads to black money
 Demonstration effects
 Social norms and values and institutions,
 Weak and unstable government and policies
Public morality……..

Impacts of the Black Economy and Nepal:

 Loss of Government Revenue: Less money for public services like schools, hospitals, and
infrastructure because taxes aren't collected properly.
 Unfair Competition: Legal businesses struggle to compete with informal businesses that
don't pay taxes or follow regulations.
 Lower Quality and Safety Standards: Products or services from the black economy may not
meet safety, health, or quality rules.
 Poor Worker Rights: Workers in the informal sector often have no job security, benefits, or
legal protections.
 Economic Instability: Since the government can't accurately measure all activity, it can lead
to wrong decisions on economic policy.

Effects of Black economy

 Effects on economy
 Losses of tax and government revenue
 Difficulties in economic estimation,
 Widening the economic inequalities between rich and poor
 Effects on production pattern
 Effects on social service
 Failure of economic policies
Measurement
Direct approach: 1) sample survey 2) tax audit
Indirect approach: national accounting, trend of income and expenditure, study
of labour participation, uses of physical inputs, transaction of goods and
services.

 Increased Inequality: The rich and powerful can exploit the black economy for profit,
widening the gap between rich and poor.

Nepal and black economy

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 Nepal has a significant black economy, and it's a serious issue for its development. Several
studies and experts estimate that around 30–40% of Nepal’s total economy operates informally
or underground.
Main Causes in Nepal
 Political Instability: Frequent changes in government and weak political institutions have
made law enforcement inconsistent.
 Corruption: Corruption in public offices has pushed many people to operate outside the legal
economy.
 Large Cash-Based Economy: Many transactions, especially in rural areas and small
businesses, are still done in cash, making them harder to track.
 Weak Tax System: The tax collection system is relatively weak, and many businesses
underreport income or avoid registration altogether.
 Border Issues: Open borders with India lead to smuggling of goods (like gold, electronics,
and fuel), boosting black market activities.
 Remittance Dependency: Many households depend on money sent by migrant workers
abroad. Often, this money enters unofficial channels (like "hundi" systems) instead of formal
banks, feeding the informal economy.
 Recent Efforts:
 Nepal's government has taken steps like:
o Promoting digital transactions (e-wallets, mobile banking)
o Strengthening customs and border controls
o Introducing stricter tax policies
o Trying to regulate informal sectors But the progress is slow because these issues
are deeply rooted.
In short:
Nepal’s black economy is a major hidden force — both a survival tool for many and a barrier to
national growth.

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