|711320|Art. of jewellery and pts<br>thereof of base mtl c|Nepal's Exports|48.9|64.6|53.2|78.4|
|---|---|---|---|---|---|---|
|||World Trade|47736.7|78023.5|114465.0|191487.0|
||Pipe,line,iron or||||||
|730610|steel,welded,riveted or sim|Nepal's Exports||590.2|2710.0|7072.3|
||closed||||||
|||World Trade|329601.0|756823.0|829761.0|2300000.0|

Source: Comtrade. Note: Average exports per annum in thousand dollars.

# **The Model**

We consider 19 products in the analysis, including tourist-related or ‘niche’ goods as well as products that should, in principle, be unrelated to tourism while they are also important in Nepal’s export basket. Specifically, the choice of products is based on three criteria: the importance of the product in Nepal’s export basket, the identification of the product as ‘strategic’ under Nepal’s Trade Integration Strategy 2010 (NTIS), and whether it is traditionally associated with the ‘Nepal brand’. Shawls and Pashminas comply with the three conditions: their weight in Nepal’s export basket is substantial, they are identified as strategic in the NTIS, and they are associated with the ‘Nepal brand’. Carpets comply with two out of the three: large weight in the export basket, and identified with Nepal’s brand – although not included in the NTIS. Handmade paper, Jewelry and Medicinal herbs are both strategic according to the NTIS, and are also associated to the ‘Nepal Brand’, although their importance in the export basket is relatively low. Finally, cardamom, pipes of iron or steel, and dentifrices are considered here as unrelated to tourism – not especially associated with the ‘Nepal brand’, but they appeared in the top 10 export products over the period 2005-2010, and the former two have been identified as strategic in the NTIS.

To identify the spillover effect that the inflow of tourists may have on merchandise exports, we estimate an augmented export supply function exploiting three sources of variation. We exploit time variation by looking at the period 1990-2011. We exploit variation across products by looking at the 19 aforementioned goods (disaggregated according to the HS classification at 6 digits), and finally, we exploit variation across the country of origin of tourists/destination of merchandise exports. The export supply function incorporates as regressors the evolution of the real exchange rate to capture relative price effects, a world demand ‘pull’ factor proxied by world exports of the product, product (or productdestination) fixed effects to control for time-invariant factors affecting the supply of exports of specific products. In addition, it incorporates tourist inflows and their per-day expenditures and their interactions with a tourist product dummy to capture the potential spillover effects that may exist. Data for tourism inflows by country of origin are disaggregated for the 16 most important countries in terms of Nepal’s tourist inflows – the rest are aggregated under “others”.

In the first stage, we only exploit variation over time and across products, but pool together the information on country of origin of tourists, and then we exploit the three sources of variation.

To further discern whether the spillover effect is specific by type of product exported, and in particular, if this spillover is related to the ‘travel channel’ described in the previous section, we follow two strategies: the first one consists in estimating an interaction model in which goods are separated into 9