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    The effect of foreign direct investment on economic growth in Somalia
    (İstanbul Gelişim Üniversitesi Lisansüstü Eğitim Enstitüsü, 2024) Mohamed, Najma Mohamoud
    Since 1994, Somalia's economy has grown significantly, reaching $5.731 billion in 2009 at a real growth rate of 2.6% predicted. Comparing Somalia to its neighbors, foreign direct investment (FDI) decreased slightly in 2014 and 2015. This had an effect on trade, competitiveness, employment creation, foreign savings, capital investment, productivity gains, and access to international markets. With an estimated GDP of $8.37 billion as of December 2023, Somalia is one of the least developed countries. In this study, the empirical relationship of foreign direct investments on economic growth in Somalia between 1970 and 2022 was examined with the help of the ARDL bounds test. In addition to direct foreign investments, inflation, trade balance, population growth and exchange rate variables, which are thought to have an impact on economic growth, were also examined. The study findings indicate the existence of a positive and statistically significant relationship between foreign direct investments and economic growth in Somalia in the specified period. On the other hand, while the effect of population growth and trade balance on economic growth was found to be positive, the effect of exchange rate and inflation variables on economic growth was found to be negative. Additionally, the coefficients are statistically significant. The study highlights the underdevelopment of Somalia's financial sector, with loans to asset finance decreasing by 10% in 2020. However, private sector credit grew steadily from 2015 to 2019, indicating growth potential. Challenges such as regulatory uncertainties and infrastructure development could hinder FDI growth despite the prevalence of mobile money. The study concludes that foreign direct investment (FDI) positively impacts economic growth in Somalia by stimulating growth in key sectors. Initial FDI inflows may not directly translate into higher growth, but lagged FDI effects emerge as positive and significant in the long run. Population growth also positively affects GDP growth as it leads to increased economic activity and production. Maintaining a positive trade balance in which exports exceed imports contributes to sustainable economic growth. Lagged GDP has a positive impact on current GDP growth, indicating a momentum effect in Somalia's economy. Real exchange rate depreciation is associated with higher long-run GDP growth, as a weaker exchange rate boosts exports and economic activity. Lower inflation also contributes to higher long-run GDP growth, as price stability creates a favorable environment for investment and economic expansion. To enhance Somalia's economic growth, the government should implement targeted policies to attract and retain foreign direct investments, prioritize investments in education and skills development, diversify exports, focus on improving the country's trade balance by reducing import dependence, invest in infrastructure development, promote price stability and control inflation. In addition, the government should encourage partnerships between the private sector and NGOs. Banks should partner with microfinance institutions to reach underserved populations and promote financial inclusion. Finally, the study focuses on the impact of foreign direct investment on Somalia's economic growth from 1970 to 2022, excluding recent economic developments. For this reason, alternative econometric models can be established in the future and different perspectives can be brought to the subject.