More than six decades since 1950s after Nepal joined Colombo plan, Nepal has enjoyed steady growth in the development. Despite receiving large quantities and many developing countries, especially the least developed countries, Nepal has remained stagnant and become more aid dependent. Nepal, least developed countries, has been receiving development assistance from both OECD/DAC countries. Foreign aid has been and remains an important source of financing the needs of developing countries in their quest for economic development. Particularly the role of developed countries US and Japan have assisted more amount of aid to Nepal in different sectors.
Despite the growing debate among the critics, very few existing literature have investigate the sincerity of US and Japanese aid towards capacity building with emphasis on economic development of Nepal. This research primarily focusing on socio economic development intends to examine the relationship between foreign aid and the economic development with regard to the government capability. It deploys the relationship between foreign aid and economic development in order to examine the effectiveness of aid in the economic development of Nepal especially focused on the US and Japanese aid to Nepal.