Unemployment remains one of the most persistent economic challenges in fragile and post-conflict economies, where trade reforms often fail to translate into inclusive job creation. In Somalia, despite increasing integration into global markets through trade liberalization, unemployment remains extremely high exceeding 54% overall and 67% among youth. This paradox motivates the present study, which investigates the impact of trade openness on unemployment in Somalia over the period 1991–2023. In this study, trade openness is measured as the ratio of total exports and imports to gross domestic product ((exports + imports)/GDP) at current prices, expressed as a unitless ratio. Using the Autoregressive Distributed Lag (ARDL) bounds testing approach, the study analyzes both short-run and long-run dynamics between trade openness and unemployment while incorporating key macroeconomic controls such as GDP growth, gross capital formation, foreign direct investment, labour force participation, and population growth. In the long-run the results demonstrate that trade openness substantially decreases unemployment, with a one-unit boost in openness lowering unemployment by 0.40 unit. This likely reflects the labour-absorptive role of agricultural and livestock exports, although such gains may be vulnerable to external shocks such as livestock import bans. GDP growth (− 0.042) and gross capital formation (− 0.021) also demonstrate consistent adverse impacts on unemployment in long-term, confirming the significance of economic growth and investment for sustainable job creation. In contrast, FDI, labour force participation, and population growth show insignificant long-run effects, underscoring Somalia’s structural challenges and concentration of FDI in non-labour-intensive sectors. In the short run, trade openness initially raises unemployment with a one-period lag due to adjustment frictions such as import competition, industrial restructuring, and skill mismatches. These temporary disruptions, also observed in many developing economies, indicate that trade liberalization can worsen unemployment before long-run stability and job recovery are achieved through the error-correction mechanism. The study makes methodological contributions by applying the ARDL bounds testing framework in a fragile, data-constrained setting, reinforced by comprehensive diagnostic and stability tests. Model identification and diagnostic checks validate the robustness of the ARDL specification, with no evidence of serial correlation, heteroskedasticity, or functional misspecification, and parameter stability confirmed by CUSUM and CUSUMSQ tests. Policy implications emphasize that trade openness should be complemented by diversification into value-added industries, institutional reforms, and targeted investment in labour-intensive sectors to fully harness Somalia’s demographic potential.
Goomeey et al. (Mon,) studied this question.