The debate about the effects of globalization on poverty and inequity has attracted public attention in recent years in both developed and developing countries. While globalization has contributed to a rapid expansion in world output and trade, poverty remains a major development challenge, particularly in LDCs. Using the experience of Nepal this paper sheds light on this debate. Our analysis suggests that in Nepal the poor have not benefited much from global integration. Not only has poverty increased, but income inequality has also grown rapidly since the country embarked on policy reforms. The magnitude of poverty is higher in rural than in urban areas. Urban poverty has reduced mainly due to growth in labourintensive manufacturing exports'motivated by the GSP quota'and an expansion in service related activities. Rural poverty appears to be linked with poor agricultural productivity.