Abstract
The Prime aim of the study was to investigate the relationship between the trade balance and Economic growth of Somalia during the period between 1980 and 2020. The study employed secondary time series data obtained from the World Bank, World Development Indicators (WDI), and African Development Bank. An augmented Dickey-Fuller test (ADF) was adopted in the study to test the Stationarity of data variables in the study. the Econometric model that was employed in the study was Autoregressive Distributed Lag (ARDL) which aims to find out the short-run and long-run relationships between the dependent variable (RGDP) and independent variable (trade balance). The study revealed that the trade balance (TB) has a significant negative relationship with the real gross domestic product (RGDP) of Somalia in both the Short-run and long run. Furthermore, the Unemployment rate have a significant negative relationship with the gross domestic product (GDP) of Somalia in both the short-run and long run. However, the foreign direct investment (FDI) and gross domestic product (GDP) had a significant negative relationship in the long run while there have an insignificant relationship between them in the short-run. The study recommends that the government of Somalia should improve the countries trade balance by increasing the production, productivity, and export of the country.
Highlights
The African economy consists of agriculture, trade, industry, and human resources
The estimated coefficient and the P-value of the trade balance are -0.028926 and 0.0304 respectively. This means that there is a negative significant relationship between the Trade balance and the Economic growth rate of Somalia in the short-run. This result implies that a 1% increase in the trade deficit (TB) leads real gross domestic product (RGDP) to decrease in 2.89% in the short run
A 1% percent increase in unemployment causes the RGDP growth rate of Somalia to decrease in 83.49% in the short-run
Summary
The African economy consists of agriculture, trade, industry, and human resources. In 2019, approximately 1.3 billion people were living in 54 countries in Africa (world population data sheet, 2017). The economy of Africa is characterized by economic growth with extreme poverty and considerable disparities between regions and countries (YAO Guimei, 2007). Africa is the second-fastest-growing region in the world, experiencing average annual GDP growth of 4.6% for the period between 2000 and 2016. From 2017 until 2022, the real GDP growth rate in Africa is estimated to grow at 3.9% annually (ODI, 2018). In East Africa, the real GDP of East Africa grew by 5.7 percent in 2018, this is slightly less than the 5.9 percent in 2017 and the highest among African regions. Rwanda, Tanzania, Kenya, and Djibouti have the highest economic growth. The most productive economic sectors in both Ethiopia and Rwanda are industry and service sectors, while in Tanzania and Kenya it is the service sector (African Development Bank Group, 2019)
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