Determinants of agricultural exports in Somalia: the impacts of exchange rates, foreign direct investment, and institutional quality

Abstract
Globally, the exportation of agricultural products plays a critical role in driving economic growth and stability, often acting as a substantial contributor to gross domestic product (GDP), employment, and foreign exchange earnings in agrarian economies. As a vital pillar of many developing countries' economies, the agricultural sector's export dynamics have remained understudied, particularly in integrating climatic, economic, and institutional-related factors. Thus, this study explores the determinants of agricultural exports in Somalia between 1985 and 2017. While the evidence from the ARDL bounds-testing cointegration analysis indicates that precipitation improves agricultural exports in the long-run, the role of agricultural production was insignificant. The analysis indicates that currency depreciation can boost export competitiveness in the long-run, whereas currency depreciation may lead to reduced exports in the short-run. Moreover, short-run domestic investments positively impact exports, but this effect diminishes over the long-run. Remarkably, institutional quality and FDI inflows are consistently identified as significant enhancers of agricultural exports. In addition, the Granger causality analysis indicates that exchange rates, institutional quality, and FDI inflows unidirectionally predict agricultural exports. Following the outcomes of this exploration, the study recommends enhancing rainwater harvesting and irrigation systems, focusing on value addition and market diversification, stabilizing currency for competitive advantage, and improving institutional quality by streamlining FDI policies.