"More and more migrants are moving to Kathmandu valley due to economic opportunities expanding the economic boundaries of the valley, the author of the study and urban development economist at the World Bank Elisa Muzzini said, adding that Kathmandu valley is also one of the fastest growing metropolis in South Asia.

Urban areas now generate about 65 per cent of Gross Domestic Product (GDP) as compared to only 29 per cent of GDP in 1975, the report said, adding that urban economy is growing significantly faster than rural economy, and the incidence of poverty has more than halved in urban areas from 22 to 15 per cent over 1995-96 — 2010-11.

Muzzini said Nepal could tap into potential of its cities to leverage their comparative advantages and turn them into competitive advantages. “Only vibrant and competitive cities can attract high-return investments and generate the higher productivity jobs required to accelerate growth to meet Nepal’s target,” she said.

The study also noted that non-farm economic production is clustered in the Kathmandu valley and close to the border with India; the eastern terai cluster surrounding the Biratnagar sub-metro and the central terai cluster surrounding Birgunj sub-metro. “Within such extended regions, firms are able to reap benefits from demand-and-supply-side linkages between rural and urban areas. As services and manufacturing activities tend to locate in the vicinity of each other in order to benefit from agglomeration economies, the urban core of the extended economic region plays the role of service centre for the rural hinterland, where manufacturing largely takes place.”

Since Nepal is going through two transformations from a rural to an urbanising economy and from a unitary to a federal state, the study has also revealed challenges as the cities are losing competitive advantages over comparative advantages due to the lack of infrastructure, proper planning and business environment.

“There is an urgent need to prioritise investments based on outcome and promote and regenerate Kathmandu valley’s valuable assets bringing infrastructure policy with proper planning to make urban growth sustainable,” she said, recommending that it will also help turn comparative advantages of the urban areas to competitive advantage for sustainable and inclusive growth.

Lately, one of the key drivers of Kathmandu’s economy has been the service sector due to the increasing number of tourists but the unplanned city has threatened the cultural heritage that could be a huge source of revenue, according to the study. “Public capital expenditure for municipal infrastructure, averaging $9 per capita, is inadequate to meet the growing needs of urban areas and has declined in real terms from $13 per capita in fiscal year 2008-09.”

The Kathmandu valley is the first area to face the unprecedented challenges of rapid urbanisation and modernisation at a metropolitan scale, due to its position as the primary gateway for the country’s economic activity and tourism. But, the study noted that growth is happening haphazardly, and is threatening to undermine the valley’s historic and natural environment."