THE EFFECT OF UNEMPLOYMENT ON ECONOMIC GROWTH IN SOMALIA

Abstract

This study aimed to investigate the effect of unemployment on economic growth in Somalia. One of the specific objectives was to describe the trends of unemployment and economic growth in Somalia. To accomplish these research objectives, the study used time series data from 1991 to 2022 and the Autoregressive Distributed Lag (ARDL) model. The unit root test results indicated that all variables were stationary at the first difference at a 1% significance level. the Key findings of this study revealed that unemployment, lagged inflation, and imports negatively affect economic growth, while foreign direct investment, agriculture, current population, exports, and gross capital formation have a positive impact. Specifically, a 1% increase in current unemployment decreases economic growth by 0.791% in the long run, with lagged unemployment reducing growth by 1.286%. Additionally, a 1% rise in inflation reduces economic growth by 0.033% in both the short and long run. Agriculture positively influences economic growth; a 1% increase in agricultural value results in a 0.718% growth increase in the short run. Population growth significantly impacted economic growth, with a 1% increase yielding a 1.589% growth rise. Exports and gross capital formation also enhance economic growth, with respective increases of 0.235% and 0.204% per 1% rise. The study found that 53.2% of the disequilibrium caused by the previous year's shocks is corrected annually, establishing a causal relationship between unemployment and GDP. The study recommended that the government should prioritize the modernization and expansion of agricultural sector. The Central Bank should implement policies aimed at stabilizing inflation Population growth should be viewed as an asset by implementing policies that improve healthcare and education, thereby transforming the population into a skilled and productive workforce.