Evaluating the impact of remittance, FDI and export on economic growth of Somalia: an empirical analysis

Abstract

This study empirically evaluates the impact of remittances, FDI and exports on the economic growth of Somalia from 1991 to 2020, a period covering state collapse and nascent recovery. Utilizing secondary time-series data, the study employs the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration to assess both short-run and long-run relationships. The Johansen cointegration test is used for further verification and to examine causality directions. The results confirm a stable long-run relationship among the variables. The analysis reveals that remittances have a significant positive short-run impact on growth, underscoring their role as an essential lifeline. Exports show a significant negative impact on economic growth in both the short and long run, indicating structural weaknesses such as a lack of diversification and value addition. A critical finding is that while FDI shows a positive long-run association, it has a significant adverse effect on growth in the short run, suggesting its immediate disruptive effects in a fragile economy may outweigh its long-term benefits. The study suggests that policymakers should adopt targeted strategies, such as formalizing remittance channels to funnel funds into productive investment, enacting strategic FDI policies that prioritize job creation and local value addition to mitigate short-term negative effects, and pursuing export diversification to build a resilient and sustainable growth.