Assessing the effects of foreign direct investment in enhancing agricultural production in Somalia.

This study examines the impact of foreign direct investment (FDI) on agricultural production in Somalia from 1989 to 2023 using the autoregressive distributed lag (ARDL) model to analyze both short and long-run dynamics. Despite Somalia’s substantial agricultural potential, the sector remains underdeveloped due to prolonged conflict, weak infrastructure, fragile institutions, limited technology adoption, and inadequate access to finance. FDI can help address these constraints by providing capital, modern technology, managerial expertise, and support for irrigation, mechanization, storage, ago-processing, and agricultural value chain development. In long-run findings reveal that FDI has a positive and statistically significant relationship with agricultural output: a 1% increase in FDI is associated with a 0.65% increase in agricultural production. GDP and trade openness also have positive effects, while inflation negatively affects agricultural output. In the short run, FDI has a small negative coefficient that is significant only at the 10% level, while trade openness has a negative and significant effect. These differences may reflect implementation delays, weak absorptive capacity, institutional barriers, import dependence, and external shocks. The study recommends strengthening investment institutions, improving infrastructure, maintaining macroeconomic stability, and promoting technology transfer, and deepening linkages between foreign investors and domestic producers. 1989 to 2023 using the autoregressive distributed lag (ARDL) model to analyze both short-run and long-run dynamics. FDI is measured by aggregate national net inflows, while agricultural output is measured at constant prices. Despite Somalia’s substantial agricultural potential, the sector remains underdeveloped due to prolonged conflict, weak infrastructure, fragile institutions, limited technology adoption, and inadequate access to finance. FDI can help address these constraints by providing capital, modern technology, managerial expertise, and support for irrigation, mechanization, storage, agro-processing, and agricultural value chain development. The unit-root results show that the variables are integrated at I(0) or I(1), with none integrated at I(2), confirming the suitability of the ARDL approach. The bounds test indicates the existence of a long-run relationship among the variables. Long-run estimates reveal that FDI has a positive and statistically significant relationship with agricultural output: a 1% increase in FDI is associated with a 0.65% increase in agricultural production. GDP and trade openness also have positive effects, while inflation negatively affects agricultural output. In the short run, FDI has a small negative coefficient that is significant only at the 10% level, while trade openness has a negative and significant effect. These differences may reflect implementation delays, weak absorptive capacity, institutional barriers, import dependence, and external shocks. The study recommends strengthening investment institutions, improving infrastructure, maintaining macroeconomic stability, promoting technology transfer, and deepening linkages between foreign investors and domestic producers.