Governance Quality and Economic Growth Nexus in Somalia: Evidence from an ARDL approach (2000–2022)

Abstract

Somalia has experienced persistent institutional weakness, governance challenges, and macroeconomic instability that constrain its long‐term economic performance. Although previous studies have examined the relationship between governance quality and economic outcomes, there is limited empirical evidence as to how specific governance dimensions influence economic growth in Somalia. Existing studies have produced mixed findings, particularly regarding the role of government effectiveness, corruption control, exchange‐rate conditions, and human‐capital‐related factors in fragile institutional environments. This study examines the relationship between governance quality and economic growth in Somalia using macroeconomic time‐series evidence from 2000–2022. Specifically, the study investigates the influence of government effectiveness, control of corruption, the selected exchange rates related indicator, and the human‐capital‐related indicator on economic growth. The study contributes to the literature by providing country‐specific evidence from Somalia, where governance institutions remain relatively weak and empirical macroeconomic studies remain limited. The study applies the autoregressive distributed lag (ARDL) approach to examine the short‐ and long‐run relationship among the variables. Annual data were obtained from the World Bank's Worldwide Governance Indicators (WGI) and World Development Indicators (WDI) databases. The analysis includes economic growth as the dependent variable, measured by annual GDP growth, while governance quality is represented by government effectiveness and control of corruption indicators. The empirical results indicate that governance‐related variables exhibit mixed and statistically weak relationships with economic growth in Somalia during the study period. Government effectiveness shows a positive relationship with economic growth, while corruption control, the exchange‐rate‐related indicator, and the human‐capital‐related indicator display negative coefficients. However, most of the estimated coefficients are statistically insignificant, suggesting that the relationship between governance quality and economic growth remains inconclusive within the selected sample period. The findings highlight the complexity of governance–growth dynamics in fragile economies where institutional reforms may require longer periods to generate measurable economic effects. The study recommends strengthening institutional capacity, improving public‐sector effectiveness, improving accountability mechanisms, and developing reliable governance systems to support economic growth. However, policy recommendations should be interpreted cautiously due to data limitations associated with the relatively small annual sample size and measurement limitations. Future research should consider broader indicators of institutional quality, human capital development, and sustainable development outcomes to provide a more comprehensive understanding of Somalia's economic transformation.