The Role of International Trade and Agricultural Production on Economic Growth in Somalia: Johansson Cointegration Approach

Abstract

This paper investigated the role of international trade and agricultural production on economic growth in Somalia by utilising annual time series data stretching from 1989 to 2019. Gross domestic product (GDP) was the dependent variable, while exports, imports and agricultural production were the explanatory variables of this study. Augmented Dickey-Fuller test (ADF) and Phillips-Perron (PP) test were used to examine the unit root of the data, and all the variables were stationary both at the first difference I(1). Moreover, the study used the Johansen co-integration method and the Granger-Causality test to analyse the long-run cointegration and direction causality of the interested variables respectively. According to the result of the analysis, Johansson and Julius method revealed that there is long-run cointegration between international trade, agricultural production and economic growth in Somalia. The results also showed that there is more than one co-integrating vector as provided by both trace and max statistics which is less than the critical value at the 5% significance level. All explanatory variables such as exports, imports and agricultural production are positively related to GDP with coefficients of 0.332%, 0.2601% and 1.0685% respectively. Interpretively, a one percent change in exports, imports and agricultural production will increase GDP by about 0.332%, 0.2601 and 1.0685% respectively. Furthermore, the consistency of this result has been confirmed by an autoregressive distributed lag model (ARDL) robustly. In contrast, we found that there is strong evidence of unidirectional causality from agricultural production to economic growth and also from agricultural production to exports. Based on the empirical findings, the study recommended to policymakers to enact policies that enhance agricultural production and trade openness, since they are essential to economic growth.