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Post-earthquake reconstruction had a major impact on economic growth, says study

Kathmandu, December 25: The post-earthquake reconstruction was one of the driving forces behind the growth of the economy from fiscal year 2015-16 to fiscal 2017-18 as it increased Nepal’s Gross Domestic Product by 4.5 percentage points on average, a study report has revealed. 

This is construed as a lower bound estimate of the effects of reconstruction on the economic growth owing to the limitations in the availability of data of other major variables and confounding effects of the 2015 blockade, natural shocks and other concurring adversities such as border blockade,  the report stated.

Average contribution of 4.5 percentage point in economic growth showed the massive impact of reconstruction in the economy as Nepal’s economy grew by 0.2 percent in fiscal 2015-16, 7.7 percent in fiscal 2016-17 and 6.3 percent in fiscal 2017-18 in basic prices, according to the Finance Ministry.

The study report was publicized amidst a function organized here today.

The Society of Economic Journalists Nepal (SEJON) conducted the in association with the National Reconstruction Authority (NRA) with support from the National Democratic Institute for International Affairs (NDI)\USAID.

The study based on the secondary data analysis was conducted under the leadership of Dr. Nirmal Kumar Raut, assistant professor of the Department of Economics, Tribhuwan University, with active participation of journalists representing SEJON.

The study showed the massive impact of the construction sector in expanding the GDP of Nepal after the earthquake relative to other major sectors of the economy from the perspective of first approach.

This study utilized two different approaches to analyze the effect of post-earthquake reconstruction on economic growth. The first inference was made from the contribution of the construction industry to GDP vis-à-vis other major industries before and after the earthquake. The second inference was made by exploiting an econometric model. 

Of the four major sectors - agriculture, manufacturing, whole and retails and construction - the share of only the construction sector in the economy expanded while share of other three sectors decreased.  

Contribution of the construction sector to GDP remained roughly constant before the earthquake while it increased after the earthquake, according to the report suggesting the important contribution of the post-earthquake reconstruction in reviving the growth. The second approach showed that post-earthquake reconstruction contributed positively to economic growth. 

Commenting on the study report, economists Dr. Govinda Nepal and Dr. Govinda Raj Pokharel, who is also the former Chief Executive Officer of the NRA, praised the NRA's work till date but said that a thorough study is necessary to ensure the contribution of post-earthquake reconstruction in the country's economic growth.

Chief Executive Officer of the NRA Sushil Gyewali said that the post-earthquake reconstruction has no doubt made a major impact on the economic growth but stressed on the need to conduct more detailed study to acsertain its exact contribution.

The study showed that housing reconstruction alone created jobs equal to 255 million man days which is equivalent to 1.42 million people being employed by the end of fiscal 2017-18. Currently, 0.55 million people are working in reconstruction of houses with jobs equal to 100 million work days being created.

According to Nepal Labour Force Survey 2017-18, one in seven people and one in five male was working in the construction industry. This ratio is the highest across all the top four employer industries in  fiscal 2017-18. For example, while one in five male was working in the construction industry, one in seven male was working in agriculture, forestry and fishing industry and one in six male was each working in manufacturing and wholesale industry. 

 

“This indicates that the construction industry has been the largest employer in recent periods. Roughly speaking, about 7 percent of the total employment in 2017-18 was created from the reconstruction of destroyed/damaged infrastructure alone,” the report said. According to the study, this is also a lower bound estimate of the total employment in the reconstruction work because this calculation is based only on a basic structure of house proposed among others and also this excludes the employment in the reconstruction of public infrastructure.

According to the report, the reconstruction process also helped promote financial inclusion by requiring the households to open bank accounts to receive the housing grant. The NRA records show that about 770,000 registered beneficiaries have opened bank accounts, out of which 30 percent bank accounts belong to women.

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