Policymakers care about export diversification. High product and market concentration increases a country’s vulnerability to external shocks. Sudden closure of export markets triggered by regulatory changes or dramatic changes in international prices, for example, could even threaten macroeconomic stability when export baskets are concentrated. Nepalese policymakers are no exception.

Largely due to being a landlocked country wedged between China (and the Great Himalaya range) and India and its low level of GDP per capita, Nepal’s exports are highly concentrated in a handful of products which are sold to very few countries. To be precise, 85% of total exports in 2011 were sold to only 5 countries, with 80% of these sold in India alone.

Additionally, over the last decade, import growth dramatically surpassed that of exports, leading to a mounting trade deficit. To reduce this exposure, promote local content, and increase exports... — blog.wb.org/blogs