Exploring the impact of domestic investment on economic growth in Somalia: an empirical analysis from ARDL bound testing approach

This study investigates the relationship between domestic investment and economic growth in Somalia from 1990 to 2022 using the Autoregressive Distributed Lag (ARDL) approach to assess both short-run and long-run dynamics. Unlike previous research that often emphasizes foreign capital, this analysis focuses on domestic investment (DI) as a primary engine of economic growth in Somalia. The model incorporates additional variables including foreign direct investment (FDI), population growth, exports, and trade openness to provide a comprehensive view of growth determinants. Findings reveal that domestic investment has a statistically significant and positive impact on GDP growth over the long term. Conversely, while FDI shows a positive but statistically insignificant effect, rapid population growth exerts a negative long-run influence. Exports contribute positively, whereas trade openness is associated with adverse long-term effects. Granger causality tests identify both unidirectional and bidirectional causal relationships between GDP and the explanatory variables. The results suggest that both public and private domestic investments are pivotal for fostering sustained economic growth. Accordingly, policy measures should prioritize investment in infrastructure, industry, and labor-intensive sectors to stimulate productivity and long-term capital accumulation.This study provides vital empirical evidence on the role of domestic investment in promoting economic growth in Somalia, a fragile and post-conflict economy. By employing the ARDL bounds testing approach and extending the data range from 1990 to 2022, the research advances the existing literature by capturing both short-run and long-run dynamics often overlooked in prior Somali studies. Findings reveal that domestic investment significantly drives long-term economic expansion, while population growth and trade openness pose structural challenges. The analysis highlights that Somalia’s economic development should prioritize domestic capital formation, infrastructure investment, and export diversification over reliance on foreign direct investment alone. Policymakers can use these insights to design targeted interventions fostering sustainable growth, labor-intensive industries, and economic resilience. The study’s methodological rigor and context-specific focus offer a foundation for future research on growth strategies in similarly fragile and low-income economies, filling a critical gap in both Somali and broader development economics literature.