Human capital and economic growth in Somalia: the role of trade openness, domestic investment, industrialization, and institutional quality

Abstract

The development of human capital is essential for achieving economic growth; however, its significance in Somalia has not been thoroughly examined. This study explores the impact of education and health on economic growth in Somalia, while taking into account trade openness, domestic investment, industrialization, and institutional quality. Using annual data from 1991 to 2020, the analysis applies the ARDL model, FMOLS, DOLS, and Granger causality tests to capture both short-run dynamics and long-run relationships. The findings reveal that investments in education and health significantly promote economic growth, and industrialization and governance also contribute positively to economic growth. Conversely, trade openness exerts a negative effect on economic growth. Complementary checks using FMOLS and DOLS confirm the consistency of these results. Somalia must pursue economic strategy that prioritizes human capital development, institutional reform, industrial expansion, and enhances infrastructure and trade competitiveness to achieve sustainable growth and long-term resilience. The findings underscore that human capital investments generate more substantial and stable growth dividends than trade liberalization in fragile economies such as Somalia.