Determinants of farm investment in Somalia: A var model application

Abstract

The main objective of this study is to examine the determinants of farm investment in Somalia using quarterly time-series data from 2015 to 2021. The study selected financing assets (FA), farm output (FO), credit for commercial banks (CCB), and saving (S) as macroeconomic variables. The augmented Dickey-Fuller (ADF) test was employed to evaluate the stationarity of the variables, and the Granger causality test was used to assess the causal relationship between the study variables. It was found that all variables became stationary at the second difference, with a trend for each of the three critical levels of 1%, 5%, and 10%. The Granger causality test indicates a unidirectional causal connection between farm investment, farm output, financial assets for commercial banks, savings for commercial banks, and loans for commercial banks in Somalia. The vector autoregressive (VAR) estimation revealed that the coefficient of determination explains 98% of the model, and the ordinary least squares (OLS) estimation showed a highly significant P-value. The results show that financing assets and savings will increase farm output if managed effectively and efficiently. Based on the findings, the study recommends that the government focus on the overall institutional framework in Somalia to facilitate economic growth, poverty reduction, and sustainable development.