Exploring The Effect of Trade Openness on Unemployment in Somalia: Evidence from ARDL Approach. (1991 – 2023)

Abstract Unemployment is one of the most pressing challenges in fragile economies, and Somalia represents a critical case with youth unemployment exceeding 67% and overall rates surpassing 50%. The present research examines the impact of trade openness and key macroeconomic factors on unemployment in Somalia from 1991 to 2023 using the ARDL approach. 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 reflects the labor-absorptive role of agricultural and livestock exports, though the gains remain vulnerable to external shocks such as livestock import bans. GDP growth and gross capital formation also demonstrate consistent adverse impacts on unemployment in both the short-term and long-term, confirming the significance of economic growth and investment for sustainable job creation. In contrast, FDI, labor force participation, and population growth show insignificant long-run effects, underscoring Somalia’s structural challenges and concentration of FDI in non-labor-intensive sectors. The short-run dynamics highlight adjustment frictions, with trade openness and FDI initially increasing unemployment before long-run stability is restored through a strong 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. Policy implications emphasize that trade openness should be complemented by diversification into value-added industries, institutional reforms, and targeted investment in labor-intensive sectors to fully harness Somalia’s demographic potential. JEL Classification: F16, F43, C32, E24, O55