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Show 1 Answer (Answer provided by Ion Sterpan)
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If the inflow of specie equals to the outflow, there is no balance of trade problem. The inflow is not dramatic and we cannot justify a government intervention there ongrounds of trade imbalance. The problem is poor domestic investment. The Nepalese probably buy luxury goods because they believe domestic projects are a less secure investment. Of course this does not directly lead to growth. You are right that political stability is needed for development. What the government can do is to credibly commit that fiscal policy, monetary policy, and regulatory policy are stable. Making that commitment believable takes a few years (a few election terms actually) of secure generalized property rights for Nepalese and foreign investors, regardless of the commodities they invest. Paradoxically the government needs to let the Nepalese buy as many luxury goods they want from abroad. If the government discourages a particular investment and encourages another, this will send the signal that property rights will always be subject to government manipulation according to the preferences of those who happen to be in power regarding one kind of domestic investment project rather than another kind of domestic development project. That signal depresses investment.

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