Agricultural Production and Economic Growth in Somalia from 1986 to 2016

ABSTRACT The study aimed at examining the effect of agricultural production on economic growth in Somalia from the period of 1986 to 2016 using time series data. Specifically, the study examined the causality and the effect of agricultural production on GDP growth. The objective was motivated by the fact that the problem statement emphasized that agricultural production has not yielded expected economic growth in Somalia. The study hypothesized that no casualty between agricultural production and economic growth and that there is no significant effect of agricultural production on economic growth in Somalia. The study followed a multiple linear regression analysis which gives best linear unbiased estimates to establish relationships between GDP and the independent variables. Prior to the regression stationarity among variables was tested using ADF tests. The test results showed that all the study variables were nonstationary at level except agricultural production that only became stationary at level. The granger causality test showed that in Somalia, agricultural production does not granger cause GDP growth. The regression model showed that there is a significantly positive effect of agricultural production (β1=0.5058) and growth at 5% level, interest rate, inflation rate and exchange rate effects were positively insignificant. The study concluded there is no causality between economic growth and agricultural production. The further concluded that agricultural production has a significantly positive effect on economic growth. Thus sustained economic growth in Somalia can be achieved through expansion of agricultural production combined with good exchange rates. This study therefore recommends that government should enabling economic and political environment to promote agricultural productivity in the country.

TABLE OF CONTENTS

DECLARATION...........................................................................................................i

APPROVAL ...............................................................................................................ii

DEDICATION ........................................................................................................... iii

ACKNOWLEDGEMENTS.............................................................................................iv

ABSTRACT................................................................................................................v

TABLE OF CONTENTS .............................................................................................. vi

LIST OF TABLES .......................................................................................................x

CHAPTER ONE ................................................................................................... 1

INTRODUCTION................................................................................................ 1

1.0 Introduction.....................................................................................................1

1.1 Background of the study...................................................................................1

1.1.1 Historical perspective..................................................................................1

1.1.2 Theoretical perspective...............................................................................4

1.1.3 Conceptual perspective...............................................................................5

1.1.4 Contextual perspective ...............................................................................7

1.2 Statement of the Problem.................................................................................8

1.3 Purpose of the study ........................................................................................9

1.4 Research Objectives .........................................................................................9

1.5 Research questions ..........................................................................................9

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1.6 Hypothesis.......................................................................................................9

1.7 Scope of the Study ...........................................................................................9

1.7.1 Geographical scope .......................................................................................9

1.7.2 Content scope .............................................................................................10

1.7.3 Time scope .................................................................................................10

1.7 Significance of the Study ................................................................................10

CHAPTER TWO ................................................................................................ 11

LITTERATURE REVIEW ................................................................................... 11

2.0. Introduction..................................................................................................11

2.1. Concepts, opinions and ideas .........................................................................11

2.1.1. Agricultural production.............................................................................11

2.1.2. Economic growth.....................................................................................16

2.2. Theoretical Review........................................................................................20

2.3. Empirical Literature .......................................................................................22

2.4Research gaps ................................................................................................26

CHAPTER THREE ............................................................................................. 28

METHODOLOGY............................................................................................... 28

3.0. Introduction..................................................................................................28

3.1. Research design............................................................................................28

3.2. Nature and Sources of data ...........................................................................29

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3.3. Model specification........................................................................................29

3.4 Data analysis .................................................................................................32

3.5 Diagnostic test ...............................................................................................34

3.5.1 Serial Correlation Test ..............................................................................34

3.5.2 Normality Test .........................................................................................34

3.5.3 Multicollinearity tests ................................................................................35

3.5.4 Heteroscedasticity Test.............................................................................36

3.6. Ethical consideration......................................................................................36

CHAPTER FOUR............................................................................................... 37

ANALYSIS AND INTERPRETATION OF RESULTS ............................................ 37

4.0 Introduction...................................................................................................37

4.1. Preliminary Analysis.......................................................................................37

4.2 Correlation Matrix of the study variables ..........................................................38

4.3 Lag selection criterion.....................................................................................41

4.4 The effect of agricultural production on economic growth of Somalia ................41

4.4.1 Regression Analysis of the variables under study........................................42

4.5 Granger Causality Tests ..................................................................................43

4.6 Diagnostic Tests.............................................................................................45

4.6.1 Normality test for series in levels...............................................................45

4.6.3 Test for Serial correlation..........................................................................46

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CHAPTER FIVE ................................................................................................ 48

DISCUSSIONS, SUMMARY, CONCLUSSIONS AND RECOMMENDATION......... 48

5.1 Discussions ....................................................................................................48

5.2 Summary.......................................................................................................49

5.3 Conclusion .....................................................................................................50

5.4 Recommendation ...........................................................................................50

REFERENCES................................................................................................... 52

APPENDICES ................................................................................................... 57

Appendix A1(Data set) .........................................................................................57

Appendix A2(VAR stability tests) ...........................................................................58

Appendix A3(Casuality tests) ................................................................................58

Appendix A4 (Autocorrelation tests)......................................................................59

Appendix A5 (Normality test)................................................................................59

Appendix A6(Granger causality test ) ....................................................................60

Appendix A7(VAR model) .....................................................................................61

APPENDIX 08 HETEROSKEDASTICITY TEST ..........................................................62

Appendix vector auto-regression results ................................................................64