The world’s trade landscape is being shaped by global value chains, which present new opportunities as
well as challenges to developing countries. While large developing countries are leveraging the benefits
of global value chains, smaller economies have been less successful. In this paper we examine the
constraints faced by Nepal, a land-locked least developed country, in participating in global value
chains. We find that weak and ineffective industrial policy has led to de-industrialization, which in turn
has reduced productive capacity. The high cost of transport and energy, inadequate provision of public
goods and low levels of investment reduce the country’s ability to participate in global value chains. As
a land-locked country, Nepal is dependent on regional neighbors for access to global markets. Shallow
regional integration, the prevalence of non-tariff barriers, and inefficient transit trade further
disadvantage Nepal.