The Impact of Trade Openness on Economic Growth in Somalia

Abstract

The objective of this study is to assess the effect of trade openness on economic growth in Somalia using time series data spanning 1985-2017. The study employed multivariate cointegration and a fully modified ordinary least square (FMOLS) cointegration method to achieve the objective of the study. The empirical findings of the multivariate cointegration test detected the presence of the long-run connection among the variables in Somalia. Moreover, the findings of the FMOLS method indicated that trade openness has a negative and significant effect on economic growth in the long run in Somalia. Besides, gross capital formation and labor force stimulate economic growth in Somalia in the long run. However, the study recommends the implementation of an effective policy to turn the unfavorable effect of trade openness on economic growth.