Research on World Agricultural Economy

Foreign Investment and Somalia’s Agribusiness: Advanced Econometric Applications

Abdulkadir Nur

Central Bank of Somalia

DOI: https://doi.org/10.36956/rwae.v6i3.1864

Received: 15 March 2025; Published: 14 August 2025

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Abstract

This study investigates the relationship between foreign direct investment (FDI) and agribusiness development in Somalia, focusing on key variables including crop output, foreign capital inflows, livestock, and precipitation. Using annual time series data from 1970 to 2021 sourced from the World Bank Indicators, the research applies Augmented Dickey-Fuller (ADF), Phillips-Perron (PP), and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) unit root tests. The results confirm that most variables are stationary at level, while FDI becomes stationary after first differencing. Johansen cointegration tests reveal the existence of a significant long-run relationship among the variables. To assess these dynamics, the study employs the Autoregressive Distributed Lag (ARDL) model alongside Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) methods. The findings indicate that crop production has a strong and positive influence on agricultural output, highlighting the importance of efficient farming practices and land utilization. FDI also exerts a positive and significant effect, reflecting the importance of capital investment, infrastructure development, and technology adoption in enhancing agricultural performance. Additionally, livestock contributes significantly to productivity, underscoring the relevance of integrated crop-livestock systems in sustaining rural livelihoods. Rainfall is found to affect agricultural output positively, emphasizing the sector’s sensitivity to climatic conditions. The Error Correction Model (ECM) confirms the existence of long-run equilibrium, demonstrating that agricultural output adjusts over time toward its long-term path. The study concludes by recommending integrated, evidence-based policy strategies to boost crop productivity, attract foreign investment, promote livestock farming, and manage water resources sustainably to support Somalia’s agricultural development.

Keywords: Agribusiness, ARDL, Rainfall, Livestock, Crop Production, FDI

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