Journal of International and Global Studies


This paper estimates the macroeconomic effects of increased spending on defense and internal security necessitated by the decade-long Maoist insurgency in Nepal. An investment equation is specified to examine the relationship between defense spending and investment. The estimation results indicate that there is a significant negative effect of defense spending on investment. A simple Harrod-Domar growth relationship is used to estimate the effect of the increase in defense spending on economic growth. This analysis suggests that between 1996 and 2006, the opportunity cost of the conflict in terms of lost output has been about 3 percent of Nepal’s current GDP.

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Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 4.0 International License.