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.