Agriculture Budget Trends: Allocation Versus Sectoral GDP Contribution in Nepal, 1990–2023

Abstract

This paper examines the long-run relationship between agriculture budget allocation and agriculture sector GDP contribution in Nepal, asking whether public spending on agriculture has tracked the sector’s economic weight, lagged behind it, or moved independently of it. The analysis uses annual data from 1990 to 2023 within a five-variable vector error correction framework that includes agriculture budget allocation, agriculture sector GDP, total budget, total GDP, and rural population. All five series are integrated of order one, and the Johansen procedure identifies one cointegrating vector. The estimated long-run responsiveness of the agriculture budget to agriculture sector GDP is 0.42, well below the unit elasticity that proportional allocation would require. The total budget envelope contributes a stronger effect of 0.68, indicating that incremental fiscal capacity is captured by other sectors before reaching agriculture. An asymmetric specification finds that the agriculture budget responds with an elasticity of 0.51 to expansions in agriculture sector GDP but only 0.18 to contractions, with a Wald test rejecting symmetric response at the one percent level. Sub-period analysis shows that the allocation-contribution ratio has fallen steadily from 0.16 in the 1990s to 0.11 in the 2020–2023 window, despite the launch of the Agriculture Development Strategy in 2015. The error correction term is -0.27 and significant, indicating moderately slow adjustment toward the long-run path. The findings document a persistent and widening gap between sectoral economic contribution and public investment, with direct implications for the productivity-driven structural transformation that the country’s development strategy depends on.