Sources of Growth, Total Factor Productivity, and Transportation Expenditure in Nepal

Abstract

This study analyzes the effect of government spending on transportation infrastructure and connects with Nepal’s economic growth, focusing on total factor productivity (TFP) from 1975 to 2023. Using growth accounting and regression analysis within the Cobb-Douglas framework, it breaks down GDP in to three stages of Nepal’s economic and political system to see how labor, capital, and TFP each contributed in economic growth. In the earlier decades, labor did most of the work. After 2008, with Nepal shifting toward democracy, capital and TFP started pulling more weight. But even as the government poured more money into roads and transport, TFP’s growth was all over the place, sometimes even slipping into the negative. Still, the regression analysis makes it clear: spending on transportation helps TFP grow. On the other hand, inflation and general capital investment barely moved the needle. At the end of the day, better infrastructure, especially in transport, means higher productivity and a stronger economy. But none of this is automatic. To turn these investments into real progress, Nepal needs steady policies, good governance, and follow-through on reforms. The study hands policymakers actual evidence they can use to make public investments that support growth, not just any growth, but one that’s inclusive and sustainable.