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This study aspires to investigate the impact of trade deficit on the economy of Nepal.It studies the causes of trade deficit in Nepal.Nepal has a very long history of trade deficit.Nepal’s trade performance over a decade persisted less satisfactory,leading to a huge trade deficit on goods and services.The economy is vigorously reliant on imports of necessary materials and foreign markets for its forest and agriculture items.Trade deficit is demolishing occupations,discouraging wages,harming competitiveness.The trade deficit has hurt the household economy of Nepal.The nation is bringing in more merchandise from outside organizations,costs are low,and domestic organizations can’t deliver things that rival lower prices.Efforts have been to analyze the various reasons of trade deficit and its effect on the economy of Nepal.Time series data through 2000/01 to 2017/18 and regression model are used to explain the impact of trade deficit on GDP.The main causes of trade deficit are political instability and conflict,budget deficit,geographical structure and trade liberalization.The regression result shows a significant negative impact of the trade deficit on the economy of Nepal.In addition,the results also show that Human development has significant positive effect on economy.Country with a higher HDI means that the lifespan is more,the education levels are higher along with high per capita income.This makes the country a developed country.By creating new income and employment-generation opportunities,particularly for vulnerable communities,trade can promote human development and help countries achieve the development goals.At the same time,Gross Fixed Capital Formation also has a significant positive impact on Nepal’s economy.Capital accumulation is considered as an important factor of economic growth.It helps in meeting all the requirements of an increasing population in a developing economy.When capital formation leads to the proper exploitation of natural resources and the establishment of different types of industries,levels of income increase and the varied wants of the people are satisfied.