Examining Bilateral Trade Relations Between Somalia and Other East African Community Countries by Panel Gravity Model

The aim of this study is to examine the bilateral trade between Somalia and other East African Community (EAC) nations from 2015 to 2022 using the panel gravity model approach. The study investigates the factors and relationships that influence trade patterns between Somalia and its trade partners. The random effects method (REM) was employed to analyze Somalia's bilateral total trade with other EAC member states. Data was collected from the World Bank and Global Economy databases. Total trade was the dependent variable, while independent variables included gross domestic product, foreign direct investment, trade openness, unemployment, population, and distance. Dummy variables such as common language, common border, and land border were also included in the analysis. The study found that the GDP ratio between Somalia and its trading partners has a significant and positive impact on bilateral trade. The trade openness ratio also exhibited a strong positive relationship with trade, while the population ratio was positively correlated with the dependent variable, and the unemployment rate had a statistically significant negative effect. It was found that foreign direct ınvestment did not have a significant effect on bilateral trade. The presence of a common language was shown to significantly enhance bilateral trade flows. However, surprisingly, the existence of common borders had a significant negative impact on trade flows. This suggests that shared borders do not necessarily lead to increased trade, and highlights the need for further exploration of the economic, political, and institutional factors that shape cross-border trade dynamics.

Keywords: Somalia, East African Community Countries, Panel Gravity Model, Bilateral Trade