The Impact of Agricultural Output on Economic Growth in Somalia

Abstract

This research analyzed how growth in Somalia was shaped by agriculture using timeseries data over the years of 1970 to 2020. Agriculture holds Somalia’s economy, and it serves as a catalyst for employment and income generation activities. The study established the relationship between GDP and agricultural output employing Autoregressive Distributed Lag (ARDL) estimation techniques, Johansen Cointegration approach, Error Correction Model (ECM), and Augmented Dickey-Fuller (ADF) Unit-root Test. The findings of the empirical analysis offer compelling support for the idea that agricultural output activities might serve as a growth engine for the economy. This research established that growth is shaped positively by gross capital formation, industry value added, service value added, and employment in agriculture. That is, for Somalia to grow, agriculture must expand. Stationary series test suggested stable series for agricultural employment while the other variables achieved a stationary series upon differencing once. Integration of order one was subsequently adopted. The adjustment parameter suggested that shortrun deviations were getting smaller and smaller as one moved towards the long-run at a convergence speed of 19.6% per year. The findings suggested that growth significantly rises when production in agriculture rises. In the long-run, growth rises when agricultural output rises. Employment in agriculture too significantly increases growth at 5% significance level. When employment rises, output rises. The gross capital formation, value-added from industry, and valueadded from the service sector increased growth. In the short-run, agricultural output and employment in agriculture have positive significant relationships with the GDP while gross capital formation and industry value added have positively contributed to GDP but statistically not significant. The service value added does not significantly impact growth. The adjustment parameter suggested that short-run deviations were getting smaller and smaller as one moved towards the long-run. In particular, the convergence was happening at the rate of 19.6% per year. The adjustment parameter was significant. This suggested that an equilibrium exists in the longrun. This research recommended heavy investment in agriculture and modernization of the sector. This research suggests the inclusion of other variables at the sectoral level in understanding growth drivers in Somalia as an area for future research.