Dynamic Interaction Between Savings, Investment and Economic Growth in Somalia: A Vector Autoregressive (Var) Approach

This study investigate the dynamic interaction between saving, investment, and economic growth in Somalia from 1989 to 2022 using a Vector Autoregressive (VAR) approach. The findings indicate that a one-percentage point increase in previous LGDI leads to a 0.8457% increase in current LGDI, while LGDP causes a drop in LGDI. Previous savings levels have unfavorable effects on current investment, with LGDP values increasing by 0.8709% when their previous value increases by 1%. The model's explanatory power is solid, with high F-statistics and statistical significance. The model's effectiveness is supported by Akaike and Schwarz criteria and low residual covariance values. While Granger causality test found predictive relationships between gross domestic investment (LGDI), gross domestic product (LGDP), and gross domestic savings (LGDS). Past savings data are crucial for anticipating future investment, but no significant correlations were found. Based on the empirical evidence, the study provides several policy impilications, including financial literacy programs, promoting political stability, and increase investments in education and healthcare.