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.

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