The impact of foreign direct investment on economic growth in Somalia

This study's goal is to determine how foreign direct investment has affected Somalia's economic growth. The primary purpose is to analyse how foreign direct investment (FDI), labor, Gross Capital Formation (GCF), and GDP all interact to influence GDP growth. The study employed an Autoregressive Distributed Lag (ARDL) model, as well as tests for unit roots, cointegration, and Granger causality, to reach these results. The study used secondary data gathered annually by the World Bank and SESRIC between 1989 and 2020. The findings of this study indicate that the previous years of GDP had a negative impact on the country's economic growth in both the short and long term. this highlights the need of fixing the necessity of fixing historical fluctuations in GDP to encourage sustainable growth. The study also revealed that FDI has no short-run impact on economic growth, it is negative in the long term. Policymakers should analyse the sort of FDI in details and should be selective in terms of accepting FDI: FDI that will be accepted should create employment opportunities for the country moreover, they shouldn't cause negative externalities like air pollution, water pollution. they should improve human resources, boost innovation, and develop global partnerships to achieve long-term economic success. According to the study's findings, labor has no influence on economic growth in the short run, but has a favorable effect in the long run. Prioritizing long-term job opportunities and investing in education, healthcare, and skill development may have a good long-term impact. The study also discovered that GCF has a favourable impact on both short-term and long-term economic growth, emphasizing the relevance of government consumption and investment expenditure in boosting economic production. To foster long-term economic growth and stability in Somalia, policymakers should employ comprehensive strategies that account for the country's unique socioeconomic context. By judiciously distributing funds to GCF, this strategy could cultivate an environment conducive to employment creation and ensure sustained economic growth. The research emphasizes the necessity of sustaining GDP, attracting FDI, investing in human capital, and maximizing GCF to aid in the expansion of the Somali economy. Targeted policymaking may pave the way for the sustained development and economic growth of the nation. Keywords: Foreign Direct Investment, Labour, Gross Domestic Production, Gross Capital formulation, Economic Growth.