The Impact of Exchange Rate Fluctuation on the Economic Growth of Somalia

Abstract

The purpose of this paper was to empirically investigate the impact of fluctuating exchange rates and inflations rates on the economic growth of Somalia. Due to Somalia’s well-documented exchange rate fluctuations, it became imperative to investigate the impact that the exchange rate fluctuations have on the country’s economic performance. In this study, secondary data was used which was obtained from the Central Bank of Somalia, World Bank, Statista, and International monetary fund. The scope of the data was from the years 2005-2020.  The ordinary least square (OLS) correlation and multiple regression analysis were used by this paper in order to examine the influence of fluctuating currency exchange has on the economic growth of Somalia.  According to the findings, the exchange rate shows a slight positive association with little statistical significance (r = .184; p = .496) with GDP growth, implying that changes in the exchange rate account for 1.84 percent of total GDP.  In addition, the results indicate that the relationship between inflation rate and economic growth is a weak positive correlation with no significance statistically (r = .205; p = .447). The finding of this paper will aid Somalia and other comparable countries in improving their monetary policies in general; it might be utilized by Somalia's central bank as a roadmap for effective monetary policy.

Keywords: Economic growth, Exchange rate, Gross Domestic Product, Inflation rate, Somali Shilling and US Dollar.

DOI: 10.7176/EJBM/14-7-02

Publication date: April 30^th 2022