Evaluating the impact of remittance, FDI and export on economic growth of Somalia: an empirical analysis

This study empirically evaluates the impact of remittances, FDI and exports on the economic growth of Somalia from 1991 to 2020, a period covering state collapse and nascent recovery. Utilizing secondary time-series data, the study employs the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration to assess both short-run and long-run relationships. The Johansen cointegration test is used for further verification and to examine causality directions. The results confirm a stable long-run relationship among the variables. The analysis reveals that remittances have a significant positive short-run impact on growth, underscoring their role as an essential lifeline. Exports show a significant negative impact on economic growth in both the short and long run, indicating structural weaknesses such as a lack of diversification and value addition. A critical finding is that while FDI shows a positive long-run association, it has a significant adverse effect on growth in the short run, suggesting its immediate disruptive effects in a fragile economy may outweigh its long-term benefits. The study suggests that policymakers should adopt targeted strategies, such as formalizing remittance channels to funnel funds into productive investment, enacting strategic FDI policies that prioritize job creation and local value addition to mitigate short-term negative effects, and pursuing export diversification to build a resilient and sustainable growth.This study provides the first concurrent empirical analysis of the impact of remittances, foreign direct investment (FDI), and exports on Somalia's economic growth, offering critical insights for policymaking in fragile states. Moving beyond conventional theories, our findings reveal a complex reality: while remittances act as a vital short-run lifeline, they may hinder long-term development without formal investment channels. More critically, we uncover a "FDI paradox," where foreign investment disrupts growth in the short run, likely due to extractive ventures in a weak institutional setting, despite a positive long-run association. The significance of this work lies in its direct challenge to one-size-fits-all growth models. By demonstrating how standard economic drivers are fundamentally reconfigured in a context of state fragility, this research provides Somali policymakers and international partners with evidence-based, context-specific strategies. These include formalizing remittances for productive investment, designing strategic FDI contracts with local benefits, and pursuing export diversification. Our work establishes a new, nuanced understanding of economic growth in post-conflict environments, crucial for fostering sustainable and resilient development in Somalia and similar fragile economies.