Nepal implemented extensive reforms during the early nineties to facilitate its integration with the global economy. The impact of these reforms on trade and economic growth has so far been weak. The significant initial effect of globaliza tion on trade has not been robust. Furthermore, the favourable initial effect of globalization on economic growth has not been sustained and the inequality in the distribution of income has continued to rise. Increased inequality and slow growth contributed to increase in the incidence of rural poverty. The poverty-reduction potential of the more significant urban growth was also offset by the rapid rise in urban inequality. Nepal should find a way of translating its integration with the global economy into higher growth and sustainable development by carrying out complementary policies to enhance supply elasticities and offset some of the adverse outcomes and by cooperative action in partnership with its South Asian neighbours. However, these should be supplemented by offsetting policies to pro mote greater equity and poverty reduction.