Exploresearch (ISSN: 3048-815X) ( Vol. 03 | No. 2 | April - June, 2026 )

On the Margins of Formal Trade: Composition and Drivers of Informal Trade at the Raxaul-Birgunj Border Trade Point

Author: Mr. Ram Lal Bagaria

India and Nepal share one of the longest open borders in the world. Unlike most other boundaries between nations, this frontier is largely undermarketed and permits free movement of citizens of both countries. This study examines the dynamics of informal trade at the Raxaul-Birgunj border trade point which is the most commercially active crossing between India and Nepal. The study employs a primary survey of 100 purposively selected respondents, including petty traders, small-scale business operators, brokers and household traders. The study identifies the commodity composition of informal trade and the factors determining informal trade between India and Nepal. The findings reveal that food grains, vegetables, petroleum products and fertilisers constitute the dominant informally traded commodities. The findings also reveal that foot-carrying and bicycle transport account for over half of all informal trade, which highlights its livelihood significance for poor border communities. As far as determining factors are concerned, price differentials, established informal networks and the open border provisions emerge as the three most significant drivers. The study contributes to the empirical literature on South Asian informal trade and provides evidence based insights for bilateral trade policy reform.

Bagaria, R. (2026). On the Margins of Formal Trade: Composition and Drivers of Informal Trade at the Raxaul-Birgunj Border Trade Point. Exploresearch, 03(02), 190–197. https://doi.org/10.62823/ExRe/2026/03/02.235

  1. Acharya, R., & Pokharel, K. (2014). Informal trade between India and Nepal: A study of select border areas. Nepal Rastra Bank Economic Review, 26(2), 107-122.
  2. Anderson, J. E. (1979). A theoretical foundation for the gravity equation. American Economic Review, 69(1), 106-116.
  3. Basnet, D., & Aryal, K. (2018). Socio-economic impacts of informal trade in Nepal-India border areas. Nepal Journal of Business Studies, 13(1), 115-132.
  4. Baysan, T., Panagariya, A., & Pitigala, N. (2006). Preferential trading in South Asia (Policy Research Working Paper No. 3813). World Bank.
  5. Bhagwati, J., & Hansen, B. (1973). A theoretical analysis of smuggling. Quarterly Journal of Economics, 87(2), 172-187.
  6. Bhattarai, S. (2019). Drivers of informal trade between India and Nepal: Evidence from the Terai region. International Journal of Economics, Commerce and Management, 7(4), 89-103.
  7. Consulate General of India, Birgunj. (2024-25). Economic cooperation: India-Nepal bilateral trade. https://www.cgibirgunj.gov.in/page/economic-cooperation/
  8. CSISA, SAWTEE, & IFPRI. (2025). Dynamics of informal cross-border trade in agricultural products between Nepal and India. https://csisa.org
  9. Development Research and Training Centre. (1993). Parallel market for foreign currencies in Nepal. University of Maryland.
  10. Embassy of India, Kathmandu. (2024). About India-Nepal relations. https://www.indembkathmandu.gov.in/about-india-nepal-relations
  11. Government of India, Ministry of External Affairs. (2024). India-Nepal bilateral brief. https://www.mea.gov.in
  12. Gupta, S., & Roy, D. (2023). Informal trade in agricultural commodities along the Nepal-India border. IFPRI South Asia Blog.
  13. Harvard Kennedy School & WIEGO. (2010). Informality in South Asia: A review. Harvard Kennedy School.
  14. Kamar, A., & Gupta, S. (2024). Dynamics of informal cross-border trade in agricultural products between Nepal and India. IFPRI.
  15. Martin, L., & Panagariya, A. (1984). Smuggling, trade, and price disparity. Journal of International Economics, 17(3-4), 201-217.
  16. National Strategy Institute. (2021). The evolving dynamics of India-Nepal economic ties. https://www.natstrat.org
  17. National Strategy Institute. (2025). 75 years of the India-Nepal friendship treaty: A time-tested bond or a relic of the past? https://www.natstrat.org
  18. Nepal Rastra Bank. (2020-2024). Annual reports. Nepal Rastra Bank.
  19. Pohit, S., & Taneja, N. (2000). India’s informal trade with Bangladesh and Nepal: A qualitative assessment (Working Paper No. 58). Indian Council for Research on International Economic Relations.
  20. Pudasaini, M. (2025). Bilateral trade asymmetries between Nepal and India: Evidence from mirror statistics analysis. Paper presented at the 13th IMF Statistical Forum, International Monetary Fund.
  21. Rao, V. L., et al. (1997). India’s border trade with select neighbouring countries. Research and Information System for Developing Countries.
  22. (2024). Trade policy analysis Nepal. South Asia Watch on Trade, Economics and Environment.
  23. Taneja, N., & Pohit, S. (2001). India’s informal trade with Nepal: An exploratory assessment. Economic and Political Weekly, 2263-2269.
  24. Taneja, N., Sarvananthan, M., Karmacharya, B. K., & Pohit, S. (2004). India’s informal trade with Sri Lanka and Nepal: An Estimation. South Asia Economic Journal, 5(1), 27-54.
  25. Treaty of Peace and Friendship between India and Nepal. (1950). Ministry of External Affairs, Government of India.
  26. United Nations Conference on Trade and Development. (2019). Borderline: Women in informal cross-border trade in Malawi, the United Republic of Tanzania and Zambia (UNCTAD/DITC/2018/3). UNCTAD.
  27. Whelpton, J. (2005). A history of Nepal. Cambridge University Press.
  28. World Bank. (2020). The African Continental Free Trade Area: Economic and distributional effects. World Bank Group.
  29. World Bank. (2026). World Integrated Trade Solution (WITS). Retrieved in May, 2026 from https://wits.worldbank.org/.

DOI:

Article DOI: 10.62823/ExRe/2026/03/02.235

DOI URL: https://doi.org/10.62823/ExRe/2026/03/02.235

Download Full Paper:
Download PDF