Determinants of Economic Growth: Evidence from Somalia

Abstract
Somalia has suffered enormous instability and civil war in the last three decades, which have impacted the population
as well as the economy of the country. Although Somalia is the one of the most impoverished and corrupt nations in
the world, it has registered small growth in recent years. The people of Somalia are entrepreneurial by nature and
have established business firms both outside and inside the country. This paper aims to investigate empirically the
causal relationships between economic growth and variables such as exports (X), foreign aid (FA), government
expenditure (GE), gross capital formation (GCF), and foreign direct investment (FDI). The unit root of the data was
tested for all variables, and the variables were non-stationary in the level model but stationary in the first-difference
model. The null hypothesis of no co-integration was rejected, and the tests revealed a causal relationship among the
variables in the study. Four of the six explanatory variables were not statistically significant. Only the variables of
GCF and FDI were statistically significant for economic growth.