This study investigates the relationship between domestic investment and economic growth in
Somalia, utilizing time series data from 1992 to 2021. The primary research question centers
on understanding the dynamics of this relationship and its implications for Somalia's economic
development. Employing rigorous statistical analyses, including long-term cointegration tests,
Vector Error Correction Model (VECM), and Granger causality tests, the study reveals
insightful findings. The VECM analysis establishes a positive and significant impact of
domestic investment on Somalia's economic growth in both the short and long term.
Interestingly, foreign direct investment and exports contribute positively to economic growth
in the long term. Conversely, exchange rate volatility adversely affects Somalia's economic
growth prospects in the long run. The Granger causality test identified a bidirectional causal
relationship between domestic investment and economic growth and a unidirectional linkage
from exports and exchange rates to Somalia's Gross Domestic Product (GDP). Notably, a
confirmed unidirectional relationship exists from economic growth to foreign direct
investment. This study significantly contributes to the existing literature by providing a
nuanced understanding of the interplay between domestic investment, foreign direct
investment, exports, exchange rates, and economic growth in Somalia. The findings emphasize
the importance of fostering a conducive environment for domestic investments, facilitating
credit access for exporters, promoting human capital development, and implementing effective
exchange rate management to sustain and enhance economic growth in Somalia.