ABSTRACT
Purposes: Although there has been some progress since the 2012 establishment of the Federal
Government Somalia, Foreign direct investment is the one of critical engines in economic
growth. The latest value of foreign direct investment for 2021 was 5.97% of GDP, comparison
of previous years to 2020 was 6.74% of GDP in Somalia. This paper aims to investigate the
asymmetric effects of foreign direct investment (FDI) inflow on economic growth in Somalia
from 1977-2021. In addition to FDI, inflation, gross capital formation, and trade openness are
used as control variables to examine their influence on economic growth.
Design/Methodology/approach: This research employs the nonlinear autoregressive distributed
lag (NARDL) technique.
Finding: The findings reveal that a positive shock in FDI positively influences Somalia's
economic growth, while a negative FDI has a negative impact. The Wald test establishes the
asymmetric effect of FDI on economic growth in both the short and long run. Moreover, trade
openness and inflation rate significantly reduce the pace of economic growth in both the long
and short run. However, gross capital formation only boosts economic growth in the long run.
Research limitations/ implications: although Somali faced a lot of challenges including civil
war, terrorists, macroeconomics instability, poor infrastructure, and corruptions are not
considered owing to data availability. Policy implications: firstly, increase revenue through tax
reforms and anti-corruption measures. Secondly, initiatives policies that help public finance
investments and reduce trade barriers. Finally, maintain macroeconomic stability of inflation,
and exchange rates, can help reduce the negative impact on economic growth improve the
investment climate and Somalia’s image abroad.
Keywords: economic growth, FDI, NARDL method, Somalia