Role of Saving, Investment and Capital Formation in Economic Development : A Case of Nepal

This paper aims at determining the role and impact of saving, investment and capital formation in economic development of Nepal. The macro economic variables are introduced vide an extension of the econometric model, which explicitly included Almon's (1965) Polynomial Lag Model. The empirical results have been estimated by using annual data for the period of 1974/75 to 2000/01 at current prices and in real terms with the entire study period divided into different sub-periods. The study revealed the strong role and impact of saving, investment and capital formation on economic development of Nepal. The estimated regression equations showed that current and past values of saving, investment and capital formation have positive impact on economic development but the current values have the largest impact. The study also showed that the role played by investment in economic development is weak while the role played by saving and capital formation is strong