Question 1: Working Subject
International Trade and Finance
Question 2: Title of Study
The Impact of Foreign direct investment (FDI) on economic growth in Somalia
Question 3: Analysis of the issue or the problem
The main purpose of this study is to empirically examine the implications of the relationship and
complementary between FDI and DI, and the contribution of these effect to economic growth.
The purpose of this study is to demonstrate the contribution of FDI to economic growth in
Somalia so as to establish whether the call for more FDI is truly justified. The relationship
between FDI and economic growth in the country would be discussed and the contribution of
FDI to growth will be revealed and whether there is suitable political and economic environment
for attracting FDI in Somalia or not.
Specifically, it will try to capture whether FDI is an adequate condition for countries to achieve
higher growth rates, or whether FDI, through its interactions with trade openness and human capital,
enables these countries to absorb and adopt new technologies and knowledge from advanced
countries, in order to catch up. And also as I mentioned before I would focus on finding a causal
relationship between FDI and economic growth in Somalia
Question 4: Research Method
Since my purpose is to assess the impact of foreign direct investment on economic growth in
Somalia, most of my information would be qualitative.
This research is partly qualitative and use of some qualitative methods to provide a clearer detail
of the analysis.
The main type of data used in this study is secondary data, the empirical analysis is conducted by
using annual data, research papers and global statistics issued by the international organizations
and Indicators economic specializes FDI and economic growth in Somalia for the past two
decades.
The model used in this study is estimated using data on Foreign Direct Investment (FDI) and
some macroeconomic indicators, which includes: Gross Domestic Products (GDP) and Domestic
investment (DI) for the period 1980 to 2015s. This study also used to regression analysis of the
ordinary least square (OLS) to the estimation technique that is being employed in this study to
determine the relationship between and impact of the Foreign Direct Investment on economic
growth proxy by Gross Domestic Product (GDP).
As well as the descriptive methods are used to provide better understanding of relationship of
foreign direct investments and economic growth in Somalia. For the same time descriptive would
be used to examine the Determinants of Foreign Direct Investment in Somalia to know what
determines to increase or decrease FDI whether it is political issue or environment and economic
indicators itself.
Question 5: General Structure of the study
My study would have couple of heading and subheadings and divided into five chapters. The first
chapter I would Introduction talking about importance of FDI investment on the economy and some
short notes about FDI in Somalia for the past and now after that there are subheadings about research
questions and so. Second Chapter would have reviews related literature about determinants of FDI
and impact of FDI on economic growth. As well as I would demonstrate theoretical framework of
FDI and its types how it is was talked about by scholars and identifying problems faced while they
were trying to know the impact of FDI on economic growth and what they recommended . Third
Chapter would be methodology which methods we are going to use whether qualitative or
quantitative and anything related tools for using to analysis my data. Fourth Chapter would be
Analysis and Findings as discussions about the results we would find. The Final chapter would be
Conclusion and provides Recommendations.
Question 6: Academic Contribution
It is widely recognized that foreign direct investment affects economic growth in host economies
both directly and indirectly. FDI contributes directly to employment, capital, exports, and new
technology in the host country.
In addition, local firms may benefit indirectly through improved productivity). This is why there is
significant competition among governments to attract inward FDI using all kinds of incentives. For
example, many governments, especially in developing economies, have adopted policies aimed at
attracting foreign investors. This is based on the belief that the benefits from multinational
corporations can affect productivity, enhance a country trade performance and upgrade the
technological progress of the host country. Another example my country Somalia has one monopoly
telecommunication firm which we call Hormuud so this firm is not facing tough competition other
telecommunication firms are so weak what about if Vodafone open a new branch in Somalia, a
competition should begin and people will benefit for getting cheaper services.
The result of this study would be useful to foreign investors and development organizations
seeking to better understand the role of FDI in Somalia.
Question 7: Literature Review
Foreign direct investment is recognized as a powerful engine for economic growth. It enables
capital-poor countries to build up physical capital, create employment opportunities, develop
productive capacity, enhance skills of local labor through transfer of technology and help
integrate the domestic economy with the global economy.
United Nations Conference on Trade and Development (2008) reports suggested that the global
FDI flow grew strongly from the 1990s up to 2008 at rates well above those of global economic
growth or trade. Also indicated that the total FDI reached $1.9 trillion in 2007, FDI flow starts its
decline from 2008 (-16%). The decline was more pronounced in 2009 (-37%) due to the global
economic crisis
Admas (2009) analyze by his study on impact of foreign direct investment (FDI) and domestic
investment (DI) on economic growth in Sub-Saharan Africa for the period 1990–2003 that DI
positively and significantly correlated with Economic growth. His study also found that FDI
initially has negative effect on DI and subsequently positive effect in the latter periods for the
countries studied. The review of the literature and findings of the study indicate that the
continent needs a targeted approach to FDI, increase absorption capacity of local firms, and
cooperation between government and multinational enterprise (MNE) to promote their mutual
benefit.
(Mohamed & Isak, 2017) Studied that FDI is not strong and statistically important determinants
of real GDP performance in Somalia, when compared with Domestic investment. The
implication of this is that the policy linkage between real GDP and FDI are weak and
unpredictable, It was recommended that future research should include other macroeconomic
indicators (such as unemployment rate, gross national product, purchasing power parity, poverty
level, and foreign exchange rate), which may help to better explain the effect of foreign
investment on the economic growth of Somalia.