It is argued that the civil war which erupted in Nepal in the mid 1990s had its seeds sown five decades ago when the country embarked on the economic development plan which placed a heavy emphasis on an urban-based import-substitution strategy. This strategy failed to benefit 86?per?cent of the population who live in rural areas and rely on agriculture. This, together with poor governance, significantly increased unemployment, poverty and rural-urban inequality by the mid 1990s, leading to the eruption of civil war. Copyright © 2006 John Wiley & Sons, Ltd.