Democracy, Governance Quality, and Economic Development

This chapter, using the most recent dataset, examines the role of democracy in the governance of Nepal, which is in transition in both political and economic systems. In doing so, particular attention is paid to the disaggregation of democracy’s components into local democracy and civil society participation. The results from the estimation employing the Auto-regressive distributed lag (ARDL) approach to cointegration for the data from 1996 to 2021 are twofold. First, both local democracy and civil society participation are major contributors to determining the level of governance. Second, improving not only the local democracy via a periodic election but also civil society participation in the democratic process needs to be given priority by policymakers. Therefore, the primary policy recommendation from this study is that Nepal should invest more in building fundamental institutions related to democracy to improve the quality of governance.