CHAPTER ONE

INTRODUCTION

1.0 Introduction
The researchers concentrated on the following in this chapter: Background of the study, problem
statement of the study, purpose of the study, research questions, scope of the study, significance
of the study, research terms and conceptual frame work

1.1 Background of the study

Government expenditure is the term used to describe funds used by the public sector to purchase
products and provide services like social security, healthcare, and education. This covers transfer
payments made up of income transfers, as well as public consumption, investment, and transfer
payments. All government purchases, investments, and transfer payments are included in what is
known as government spending or expenditure. The government has the ability to fund
expenditures. Many people believe that government spending has a significant impact on
economic growth. A crucial prerequisite for the economy's efficient operation is public
investment in essential infrastructure. Spending on health and education facilities has also been
found to enhance the development of human capital. According to Wagner's Law, government
spending is a factor that is influenced by economic development. In other words, in accordance
with Wagner's Law, the relationship flows from economic success to government spending,
suggesting that the former should be viewed as a crucial variable and the latter as a supporting
one. (S, 2019),

Economic growth is the gradual rise or improvement in the market value of the commodities and
services an economy produces, adjusted for inflation. Statisticians typically use the real gross
domestic product, or real GD, to measure this type of growth. When people take available
resources and arrange them in more advantageous ways, economic growth results. The most
effective means of eradicating poverty and raising standards of living in developing nations is
economic growth. Strong evidence is presented by both cross-country research and country case
studies indicating quick and sustained growth is essential to achieving all of the Millennium
Development Goals, not only the first objective of decreasing the global percentage of people
living on less than $1 per day. Growth can create beneficial cycles of wealth and opportunity.
Parents are more motivated to make an investment in their children's education by sending them
to school when there is strong growth and career opportunities. A powerful and expanding group
of entrepreneurs may result from this, which should increase pressure for better governance.
Therefore, rapid economic expansion fosters human development, which in turn fosters rapid
economic growth. (Rodrik, 2007)

Globally, Government spending is essential to ensuring that a country allocates and uses
budgetary resources to achieve a strong economic performance (World Bank, 2015). As a result,
any economy should consider how government spending and increase in output relate to one
another. Whether or not government spending accelerates an economy's rate of output growth is
a crucial subject. Keynes explained in 1936 that when the government increases tax revenue and
government spending, With the primary objective of attaining macroeconomic goals of lowering
unemployment, promoting economic growth, and ensuring price stability, it has an impact on
aggregate demand and levels of spending. Keynes argued that the best ways to alter aggregate
demand and, consequently, growth, was to increase government expenditure and reduce tax
rates. (“casia,” 2020)

Government spending continues to be a crucial tool in the development process. At practically

all stages of growth and development, it is crucial to the operation of any economy. Today, the
majority of industrialized and emerging nations employ public spending to alter the composition
of national income, improve income distribution, and steer resource allocation in desirable
directions (Assi et al., 2019; Vtyurina, 2020; World Bank, 2008). For instance, in developing
nations, the variation in government spending patterns is anticipated to not only ensure stability
but also to promote economic growth and increase employment opportunities. (Aluthge, Jibir, &
Abdu, 2021)

Two tasks are carried out by the government: protection (and security) and the provision of
specific public goods. The establishment of the rule of law and the enforcement of property
rights are protection functions. This reduces the likelihood of crime, safeguards people and
property, and defends the country from foreign aggression. Defense, roads, education, health,
and power are just a few examples of the public goods that fall under their provisions. Some
academics contend that increasing government spending on physical and socioeconomic
infrastructures promotes economic growth. For instance, government spending on health and
education increases labor productivity and spurs the expansion of the nation's output. Similar to
this, spending on infrastructure (such as roads, communications, and power) lowers production
costs, boosts private sector investment, and increases firm profitability, all of which support
economic growth. The importance of reducing the role of the private sector through the crowding
out effect is emphasized by neo-classical economists because doing so lowers inflation. Landau
(1983) discovered that increasing the share of government spending in real GDP slows the rate at
which per-capita real GDP grows. (Barlas, 2020).

Regionally, In Africa, the government's reforms to government spending have an impact on how
much the public sector contributes to the GDP growth rate in east Africa. The primary goal for
government spending has been to restructure overall spending by allocating more funds to
initiatives that support quicker economic growth. In order to do this, a number of policy reforms
have been put into place, such as streamlining government spending so that more money is
directed into development and recurring non-wage operation and maintenance expenses to
promote economic growth. (Maingi, 2017).

Some of the expenses made by the government are productive, while others are not. Government
spending on health and education boosts labor productivity and spurs the expansion of the
nation's output. Education is one of the important factors that determine the quality of labor.
Government expenditure on health could lead to economic growth in the sense that human
capital is essential to growth. Agriculture, in the form of food security, and good investment in
national defense are both necessary for safeguarding and protecting the country from foreign
aggression, but the financial source for public expenditure, which is taxation, reduces the
benefits of the taxpayers and as a result reduces the benefits associated with economic growth.
(Barro, 1990). As a result of insufficient revenue, it is necessary to divide government spending
in East Africa into productive and nonproductive areas in order to lower the latter. (Desmond,
Titus, & Timothy, 2012)

Locally, Somalia research investigated by Somalia government early 2019, the Federal
Government of Somalia declared that it had raised the government budget to USD 300 million,
and by August 2019 had recorded public expenditure of USD 171 million. This enabled the IMF
to announce on 25 March 2020 that Somalia was now eligible for debt relief, which was enable
the World Bank to release further monies With disputes between it and the Federal Member
States (FMS) over the distribution of income and expenses, the federal government is engaged in
a protracted process of establishing a federal system. In this regard, increasing the government's
tax base continues to be a difficult task. The need for in-depth discussions of accountability and
fiscal federalism grows as income and expenditure rise. This briefing examines some of the
economic and cultural barriers to boosting domestic revenue mobilization in Somalia, drawing
on research done in Mogadishu in 2018. It undercuts the government's capacity to deliver the
services that foster goodwill and trust among its constituents. (Abdirahman & Stogdon, 2020).

There are many various types of expenditures, such as typical administrative expenses and
emergency costs. When additional funds are requested on the grounds that they are urgently
needed for the current year's operations and could not have been anticipated in the annual budget,
the Minister may transfer the requested funds from the provision 2 of the Appropriation Act for
the 2017 Budget for Contingency Budget. The appropriate appropriation is sent to the
accountable Public Body whenever an expense from the contingency budget has been approved
by the Minister of Finance. that appropriation is transferred to the responsible Public Body. The
budget of the Federal Government of Somalia is hereby appropriated for the Fiscal Year
beginning on January 1, 2017, and ending on December 31, 2017, from the Federal Government
Revenues and other funds for undertakings set forth in the schedule hereto. The Minister of
Finance was required to provide Parliament with regular reports on appropriations transferred
from the contingency reserve. The following is the entire budget allocated for ongoing and
capital expenses: For ongoing costs, US$ 255,866,034 US$ 11,711,930 will be spent on capital.
Total: 267,577,964 dollars .(Act et al., 2017)

1.2 Problem Statement of the Study.

Stiglitz (1996) emphasizes in his article on government spending and economic growth that
spending by the government is an investment, so significant spending by the government should
be made on physical infrastructure, such as buildings and roads. He continues by emphasizing
the value of government spending on technology and human capital because both of these factors
can contribute to economic growth. The correct kind and amount of government spending
allocated to economic and social development projects in the economy will largely determine
how much the government's development spending will influence how quickly the economy
grows. When the government invests in a particular project, the project itself may result in a
redistribution of the investable resources to the private sector of the economy.

There are some problems existing government spending, such us, lack of infrastructure, lack of
social welfare, Consequently, one of the main factors contributing to the state budget's
inefficiency is the quality of government expenditure. The existing government spending on
basic needs for the state, like staff pay, does not produce income to close the budget deficit.

Due to the aforementioned causes, academics aim to explore the effects of variables including
spending on agriculture, health care, and education on economic growth.

1.3 General Objective of the Study

 To examine the impact of government expenditure on economic growth, a case study of
government expenditures time series of 30 years.

1.4 Specific Objectives

I. To determine effect of education expenditure on economic growth in Somalia.
II. To access the influence of health expenditure on economic growth in Somalia
III. To evaluate the impact of agriculture expenditure on economic growth in Somalia.

1.5 Research Questions

I. What is the effect of education expenditure on economic growth in Somalia?
II. What is the influence of health expenditure on economic growth in Somalia?
III. What is the impact of agriculture expenditure on economic growth in Somalia?

1.6 Scope of the Study

1.6.1 Content of Scope

In this study, the researchers were examined the impact of government expenditures on
economic growth in Somalia, to determine effect of education expenditure, health expenditure
and agriculture expenditure on economic growth in Somalia
 1.6.2 Geographical Scope
This study was occurred at Somalia economy by examining public spending on economic
growth.

1.6.3 Time of Scope

in this study the, the researchers were conducted in 30 years starting from period 1992 to period
of 2021

1.6 Significance of the Study

The primary goal of the study was to ascertain how government spending affected Somalia's
performance in the areas of agriculture, health, and education. Because of the devolved structure
of governance, this study will help decision-makers acquire understanding when deciding how
much money to spend on regulating particular economic sectors. Additionally, the study's
findings assisted the Somali government in forging strategic partnerships with allies, donor
groups, and non-governmental organizations.

1.6 Research Terms

Government spending is a word used to describe funds that a government spends on anything
from local municipal councils to federal agencies, with the goal of promoting peace and harmony
alongside economic development or growth.

economic growth is the rise in a nation's overall production. It is the rise in the amount of goods
and services produced and consumed. The gross domestic product (GDP), often known as the
gross national product, can be used to quantify this (GNP). The primary distinction between
GDP and GNP is that whereas GNP includes output obtained from sources outside of the
country, GDP exclusively concentrates on activity that is entirely domestic in nature. (Wambui,
n.d.)

Education is the process of bringing about changes in a person's behavior, cognitive process,
and abilities. Education is also defined as the methods through which a person picks up socially
acceptable behavioral patterns like ability and attitude. With the availability of skills in the labor
force and the cost of these skills, education defines a nation's value in the global marketplace.
(Ekinci, Karaçor, Konya, & Güvenek, 2017)
Health is more than just the absence of disease or disability; it is a condition of whole physical,
mental, and social well-being. Health and health-related expenses make up health costs.
Regardless of the principal role or activity of the organization delivering or funding the related
health services, expenditures are characterized based on their primary or predominate goal of
enhancing health.

Agriculture The science and art of cultivation on the soil, and keeping cattle. Farming is another
name for it. The world's industrialization depends on agriculture. Every industrialized nation
experienced an agrarian period.

1.6 CONCEPTUAL FRAMEWORK

Education
Expenditures

Health Economic growth

Expenditures

Agriculture
Expenditure
 CHAPTER TWO
LITERATURE REVIEW

2.0Introduction
This chapter was reviewed the related literature of the study and contains generally two parts the
first part is empirical literature and the second is theoretical literature the first part has the
following sections one is the introduction of the chapter, section two is the effect of education on
economic growth section two is the impact of health expenditure on economic growth, section
three is the influence of agriculture on economic growth,

The position and significance of government expenditure in the economy have a subject of great
debate among various economists. A number of empirical studies, conducted to examine the
relation, and impact, between government expenditure on economic growth, presented as
follows.

Stiglitz (1996) highlights in his article on government spending and economic growth that
spending by the government is an investment, hence significant spending by the government
should be made on physical infrastructure, such as buildings and roads. He continues by
emphasizing the value of government spending on technology and human capital because both of
these factors can contribute to economic growth. The correct kind and amount of government
spending allocated to economic and social development projects in the economy will largely
determine how much the government's development spending will influence how quickly the
economy grows. When the government invests in a particular project, the project itself may
result in a redistribution of the investable resources to the private sector of the economy in the
country. (“majid zin,” 2017)

According to his theory (Vedder and Gallaway, 1998), the government has a significant impact
on the high level of economic growth because, in societies with no government and frequent
revolutions, little wealth was created through economic activity that was profitable and provided
an incentive to save. Break (1992) tries in his argument to highlight the multifaceted, all-
encompassing measurement of the economic role of the government. He highlights two key
realities about the economic function of government, including the fact that it is impossible to
say with certainty whether that role is expanding or reducing and that there is no simple way to
set effective growth restrictions. Government involvement through the provision of infrastructure
and financial support for social overhead acilitate economic development from low level to high
level. Bhatia (2002) argued that government development expenditures have an active role on
creating infrastructure of economic growth in the form of capital goods, education and training
and communication facilities. (“majid zin,” 2017)

Policymakers and governments have long analyzed and discussed the connection between
government spending and economic growth. The analysis and discussion mostly center on how
government affects the expansion of the national economy, or more generally, how big the public
sector should be. According to Keynes, government spending can be viewed as an exogenous
element that influences economic growth through the use of policy instruments, but Wagner's
law suggests that this type of expenditure can also be seen as an exogenous factor that results
from growth. Based on a diachronic trend, Adolf Wagner (1883) recognized the positive
correlation between public spending and rates of economic growth. One of the key of the private
cost causes of the expense increase is public spending. . .(Nyasha, Africa, & Odhiambo, 2018)

The Keynesian theory holds that government expenditure has a favorable effect on economic
expansion. According to the Keynesian idea, expansionary fiscal policy results in higher
economic growth the more money the government spends (Romer, 1986). The underlying
assumption is that as government expenditure increases, output would follow suit, stimulating
aggregate demand and raising GDP levels. Government spending can also have a favorable
impact on economic growth through private investment. Ram (1986) and Ghali (1998) contend
that raising public spending stimulates private investment, which results in higher economic
growth. (Nyasha et al., 2018)

According to Keynesians, using government spending as a tool for fiscal policy can help achieve
both greater long-term growth rates and short-term stability. They therefore call for the
government to intervene in the economy through fiscal measures, as this is essential to the
process of development. In order to remedy short-term volatility and boost long-term steady state
growth rate, they call for expansionary policies during economic contractions and vice versa. If
not, the economy would rest at a lower growth trajectory. (Dereje, 2012).

On the other hand, according to the Keynesian school of thinking, increasing government
expenditure stimulates domestic consumption, particularly during economic downturns when
rigidities in the labor market prevent the free market from maintaining equilibrium. This amply
demonstrates Keynes' preference for fiscally expansionary measures for nations dealing with
recessions. The Wagner's law, which asserts a causal relationship between economic expansion
and government spending, is the other viewpoint. He provides three justifications for such a
connection.

(a) the growth of the economy enables the state expand social and welfare expenditure,

(b) the administrative and protective functions performed by the government for public that
substituted the private activity.

(c) government interference is necessary to manage accepted monopolies. Therefore, in

Wagner’s view, government spending is an important determinant of economic growth.(Ahuja &
Pandit, 2020)

(Barro 1999) used data from 1960 to 1995 to conduct an empirical examination into the factors
that influence economic growth for a panel of 100 nations. Among the major factors considered
in the study were government investment and consumption spending. The study's findings
included the fact that government investment spending has a favorable effect on economic
growth. It was therefore decided that government investment spending should be supported in
order to increase economic growth.

(Bose et al. 2007) Based on a sample of emerging nations concluded that the influence of public
expenditure on economic growth is favorable. In their article, they looked at how government
spending affected growth for a panel of 30 developing nations over the 1970s and 1980s, paying
particular attention to disaggregated government spending. They discovered that government
capital spending is positively and strongly connected with economic growth using a
methodology that accounts for the effect of governmental budget limitations and any biases
resulting from omitted variables. Further, after accounting for the budgetary restraint and omitted
factors, the only expenditures at the disaggregated level that showed a positive influence on
economic development were government investment in education and overall education
spending.

(Attari and Javed 2013) Using time series data spanning from 1980 to 2010, experimentally
investigated the connection between government spending and economic growth in Pakistan.
The report further divides public spending into two groups: current spending and development
spending. The study's findings, which were based on time-series econometrics methods, showed
that both categories of government spending have a favorable effect on economic growth in the
studied nation over the long and short terms. (Nyasha et al., 2018)

(T.L.A. Leshoro 2017) also used annual data spanning the years 1976 to 2015 to empirically
assess the relationship between government spending and economic development in the context
of South Africa. Government spending was further broken down into two different categories:
government consumption and government investment. The study's findings, which were obtained
using the autoregressive distributed lag (ARDL) estimate method, demonstrated that government
spending, regardless of whether it is considered to be an investment or consumption expenditure,
has a beneficial impact on economic growth in the studied country. Whether the estimation was
done in the long run or the short run, it was discovered that these conclusions held true.
(Sciences & Africa, 2019)

The public sector provides government services including education, health care, and
administration in addition to engaging in productive activities in the fields of agriculture,
industry, transportation, and trade. Through public sector reforms, which directly determine how
much of the nation's resources to divert to its own use and how those resources should be divided
in order to boost economic growth, the government plays a leading role in shaping the pattern of
economic growth. The government expenditure changes it has implemented have had an impact
on how much each sector contributed to Kenya's GDP growth rate. Restructuring total
government spending by allocating more funds to initiatives that support quicker economic
growth has been the key objective. In order to do this, a number of policy reforms have been put
into place, such as streamlining government spending so that more money is directed into
development and recurring non-wage operation and maintenance expenses to promote economic
growth. (Maingi, 2017).

(Oyinlol1993,) The amount of money a specific government spends to fund all of its activities in
order to provide public goods is known as government expenditure. noticed that a significant
fiscal management challenge for economies in transition is the quantity of government spending
and how it affects economic growth. The amount of money the government spends on delivering
public goods and services is known as public spending. This also entails offering education,
Recurrent expenses, which are primarily salaries and wages and other operating costs, also
include expenses for health, security services, transportation, and infrastructure ( Wambui,
2011)

(Vtyurina, 2020; Assi, 2019) Government spending continues to be a crucial tool in the
development process. At practically all stages of growth and development, it is crucial to the
operation of any economy. Today, the majority of industrialized and emerging nations employ
public spending to alter the composition of national income, improve income distribution, and
steer resource allocation in desirable directions (World Bank, 2008). For example, in emerging
nations, variations in government spending patterns are anticipated to not only ensure stability
but also to promote economic growth and increase employment possibilities (World Bank,
2015). .(Aluthge et al., 2021)

2.2 Empirical Literature

2.2.1 Education Expenditure on Economic Growth
(Oban's 2004) study claims that the rise in high school enrolment is a result of the rise in
economic growth, which is also responsible for the rise in primary school enrollment.
Additionally, the rise in college enrollment is a result of the rise in high school enrollment, and
the rise in high school enrollment is a result of the rise in educational costs. The act of bringing
about changes in a person's behavior, mental process, and skill set is how the concept of
education is defined. Education is often described as the methods by which a person learns
socially acceptable behavioral patterns, including aptitude and attitude. With the availability of
skills in the labor force and the cost of these skills, education defines a nation's value in the
global marketplace. (Ekinci et al., 2017)
Operating expenditure and development expenditure are the two categories of government
expenditures in the education sector. Operating expenses are costs incurred to support ongoing,
regular, and daily activity. The payment of salaries, allowances, utilities, and other services are a
few examples of running expenses. Development expenditures are defined as one-time capital
expenses with a constant expectation of long-term profits. As a result, it demands a sizable
investment or service, provides long-term advantages, and necessitates oversight and upkeep.
The infrastructure and amenities in schools and institutions of higher education are expected to
be provided by development expenditures. Because it requires careful planning and is
complicated, development spending is separated from operating expenditure. In addition to
fostering economic growth, development expenditures include capital initiatives that were
designed to improve the socioeconomic status. (Rambeli, Ramli, Hashim, Affizah, & Marikan,
2016)

(Meulemesteester and Rochat 1995) assert that one of the elements that contributes to a nation's
economic development is education. They also emphasize how economic growth is influenced
by indices of education. Furthermore, in the process of economic development, highly educated
human capital complements other elements like capital, labor force, and exports. A study on the
relationship between higher education enrollment and the Greek economy from 1960 to 1994 is
being conducted by (Asteriona & Agiomirgianakis (2001). According to the findings, a 1%
increase in higher education enrollment increased the nation's output by 0.42 %. (Self and
Grabowski 2004), on the other hand, study income growth in India from 1966 to 1996 by
dividing educational attainment into primary, secondary, and tertiary levels. Their research
shows that primary education has the greatest impact on the increase of the national income.
(Rambeli et al., 2016)

according to (Schultz 1963). Increasing worker education significantly contributed to growth in

both developing and developed countries, the societal and personal advantages of educational
investments were examined by Hicks (1980). Investment in human resources has therefore
accelerated growth. Another study worth mentioning is that of (Uzawa, 1965), together with
Lucas Jr. (1988). These models define the output level as a function of human capital. Human
capital can expand without boundaries, according to long-standing and developing theories. It
was proposed by Uzawa and Lucas that educational quality might rise with time. .(Almajdob &
Marikan, 2019)

According to the (Solow Growth model1997), education is crucial for a nation's economic
development. Investments are required for educational advancement. A significant portion of
investments in education are made by the government. Therefore, public spending on education
had an impact on the Arab Spring countries' economic expansion. But when the economy
expands, Additionally, if the government wants to improve education, it may decide to boost
spending on public education. By taking into account the expanded Solow Growth model,
Mankiw, Romer, and Weil (1992) discovered a positive correlation between education and
economic growth. (Almajdob & Marikan, 2019)

Education is Both imparting information to others and absorbing it from someone else are acts of
education. Education also covers the institution of teaching as a whole as well as the information
acquired via formal education or instruction. The literature on economic growth has extensively
examined education as one of the most significant expenditures in human capital. Education has
been claimed to influence growth via a variety of processes. For instance, education can
influence growth by improving the workforce's efficiency, decreasing inequality, encouraging
health, lowering fertility rates, improving the environment for good governance, and enhancing
an economy's knowledge base and ability for innovation. (Yew & Ugur, 2017)

(Easterly and Rebelo1993) the literature on economic growth has extensively examined
education as one of the most significant expenditures in human capital. Education has been
claimed to influence growth via a variety of processes. For instance, education can influence
growth by improving workforce productivity, reducing inequality, enhancing health, and
lowering fertility rates. When the baseline income disparity is sufficiently large in an
overlapping-generations model, public education can result in higher per capita incomes by
improving the environment for effective governance and by boosting an economy's knowledge
and innovative potential. studies show that funding for education increases economic expansion
and lessens welfare losses brought on by human capital externalities. The empirical evidence
with regards to government education expenditure and economic growth however has been
mixed find a positive association between government education expenditure and economic
growth find the positive relationship only for some specifications. (Yew & Ugur, 2018)

(Moore 2006) concurred that increasing educational attainment is crucial to raising economic
productivity. According to his findings, a rise in the proportion of university-educated
households would lead to a decline in the poverty rate and raise Barbadians' general level of life.
Using an estimated production function and labor inputs that have been quality-adjusted, Real
gross domestic product is the dependent variable, with quality-adjusted capital stock and
technology acting as its independent factors. .( Bahamas, 2016.)

Studies on the effectiveness of public spending on education, including enrolment rates and other
outcome indicators, have been conducted since the mid-1990s (Anand and Ravalli on, 1993;
Appleton et.al.1996; Filmer and Pritchett, 1997; Mingat and Tan, 1998; Gupta et.al., 2002;
Baldacci et.al., 2004; among others). These cross-country regressions produced a range of
findings. Baldacci et al. (2003) and Gupta et al. (2002) demonstrate that social spending is a
significant predictor of educational attainment based on cross-sectional data for developing
nations. These researches discover that when the temporal dimension is also considered, the
impact of social spending on educational results is weaker than it is in cross-sectional samples.
Additionally, they discover that health expenditures have less of an impact on social indices than
education spending does. Anand and Ravallion are further sources that support the idea that
social spending has a favorable impact on social metrics (Bidani and Ravallion 1997),
Psacharopoulos (1994), ( Hojman 1996), (Lopes 2002), and( Psacharopoulos and Patrinos 2002).

The role of public policy in assisting nations in achieving the MDGs is a critical topic in this
regard (. Gallagher 1993) demonstrates that public spending has a beneficial impact on
educational attainment after accounting for quality. The public sector dominates in most nations
when it comes to delivering the health and educational services required to develop human
capital. The influence of these expenditures on social indicators, which through their positive
effects on economic growth may assist nations in achieving the MDGs, is therefore of major
interest. The public sector's involvement in these areas may be justified by favorable externalities
or market failures, but this does not prove that increasing spending is the best or the only policy
action for achieving the MDGs. The significance of generating noticeable advancements in
indices of human capital measured on the basis of essential education has been further
underscored by the rising attention being paid to the Millennium Development Goals (MDGs). .
(Paper & Expenditures, 2007)

These days, knowledge-based economies and information societies are present in every
European country. As a result, human capital is becoming an increasingly crucial asset for the
success and prosperity of nations both now and in the future. Governments have already
acknowledged this necessity, which prompted the Lisbon European Council to set the strategic
objective for Europe in March 2000 to become by 2010 "the most competitive and dynamic
knowledge-based economy in the world." capable of generating more and better jobs and more
social cohesion through sustainable economic growth. The crucial function of education, which
is still largely supported by public funds, and the necessity to use the limited resources as
effectively as possible have generated a sizable need for reliable financial indicators and
effective statistics on educational spending. Due to the complexity of educational expenditure
figures, a brief user guide to these statistics has been developed to meet the growing need for
authoritative information on these statistics. It will be used as background information to help
people understand the range of figures on educational spending. Therefore, the key goals were to
keep it as brief and straightforward as possible to prevent any user confusion. .(Publications &
Sn,2008.).

Education is crucial for the development of human capital, which is essential for the
advancement of science and technology. The fight against unemployment, the confirmation of a
strong foundation for social fairness, awareness, and cultural vitality are all reasons why
education is seen as a viable path to economic growth. It increases people's efficiency and
productivity and creates a trained workforce capable of guiding the economy down the path of
economic growth. Expecting to uncover a connection between education and economic growth
for two very simple reasons. First of all, it seems logically reasonable on the broadest scale that
the reason why living standards have increased so significantly over the past millennium and in
especially since is due to education. Second, a variety of econometric studies show that, at a
more detailed level, the earnings that people can command vary according to their level of
education. It makes sense to refer to investing in human capital as the antithesis of investing in
fixed capital if spending on education yields some form of returns similar to spending on fixed
capital. The decision to invest in education might be compared to a financial decision. .(Louaj &
Mekdad, 2014)

The most potent force driving success and prosperity on a global scale is education. It is also
regarded as a crucial tool that significantly affects the rate of the nation's development and
growth.

For the general well-being of society, the GDP and education level are crucial factors. Investing
in education entails investing in human resources, one of the most crucial components of the
production function that is directly related to the level of development and standard of life of the
nation. The success of the rivalry is another crucial factor that affects economic growth in this
age of globalization. Numerous theoretical models demonstrate the beneficial relationship
between government spending on education and economic growth. One of the most important
factors affecting a nation's overall social wellbeing is the public funding of education. To foster
economic progress, the government should exercise caution while providing public funding for
education. .(Paper & Economic, 2015)

2.2.2 Health Expenditure on Economic Growth

According (Hashmati 2002) Using a sample of Organization for Economic Co-operation and
Development (OECD) countries from 1970 to 1992, used the Solow growth model to examine
the relationship between health expenditure and economic growth. He concluded that there was a
positive relationship between health expenditure and economic growth. In Turkey over a longer
time period (1960-2005), (Arsoy et al.2012) utilized the same methods and concluded that there
is a correlation between health spending and economic growth. A comparable study conducted in
Turkey from 1950 to 2005 by Eryiit et al. also found a correlation between health spending and
economic growth. growth.(Piabuo & Tieguhong, 2017)

Important factors in an economy include healthcare spending and its effects on economic
performance. It has been demonstrated in some research that better health can result in higher
GDP (GDP) The quality of human capital includes the healthcare sector significantly. The
increasing investment in healthcare boosts human capital's productivity, which benefits
economic growth (Raghupathi & Raghupathi, 2020)

(Bhargava et al. 2008). The impact of health indicators on economic development rates in
developed and developing nations from 1965 to 1990 was examined by In this panel data study,
it was discovered that health and economic growth are positively correlated. In order to account
for health and job experience, Bloom et al. extended production function models of economic
growth for a panel of nations observed every 10 years between 1960 and 1990. According to
their findings, economic growth is positively and statistically significantly impacted by health.
Mayer investigated the Granger causality between healthcare spending and income for 18 Latin
American nations and discovered a significant causal relationship between income and
healthcare. There is a long-term association between healthcare spending and GDP, according to
Clemente et al's analysis of healthcare spending trends in several Organization for Economic Co-
operation and Development (OECD) nations. (Bedir, 2018)
Health is more than just the absence of disease or disability; it is a condition of whole physical,
mental, and social well-being. The main issues facing our period and society now are to develop
social welfare and to promote, stimulate, and support individual autonomy and dignity. When the
World Health Organization (WHO) was founded in 1948, the definition of health was included
into its Constitution, making the modern notion of health official. Dr. Andrija Tampar, one of the
founding members of the WHO and a well-known Croatian academic in the fields of social
medicine and public health, put o Because health is intimately correlated with the social
environment, as well as living and working conditions, this definition highlighted for the first
time that, in addition to physical and mental health, social welfare is an intrinsic component of
the overall health. According to Svalastog, Donev, Kristoffersen, and Gajovi (2017) the term in
2006. According to this widely accepted definition, "health is a state of perfect One of the main
factors affecting a country's economic progress and health status is its health expenditure. A
nation's health system's health spending flows are monitored consistently, thoroughly, and
systematically through national health accounts (NHA). The NHA is one of the few sources of
data on health spending that is similar across borders and is created to help the successful
implementation of health system goals. As opposed to being merely another set of statistics,
NHA data are now a crucial source of up-to-date information on national health spending. The
movement of health expenditures across the healthcare system is tracked and quantified by
national health accounts (NHA). The fact that this tool is based on standardized definitions and
accounting procedures can help users gain a better knowledge of the financial aspects of any
nation's healthcare system. The National Health Accounts are a tool made up of a standard
collection of tables to record the flow of health expenditures between the public and private
sectors within a nation during a specific time period. Any health system's performance must be
examined, and this tool provides vital information such as input, output, and resource usage. To
guarantee that the information from NHA is comprehensive, uniform, comparable, and timely, a
similar set of standards and procedures must be applied. 2003's "H e a lt h r e p o r t"

More and more people throughout the world are realizing how crucial health is to the growth and
economic prosperity of people and countries. This is evident from a number of measures
implemented by African nations to boost health investment in order to achieve the health MDGs
(MDGs). African One of the most important ways to demonstrate a leader's political will,
commitment, and ability to deliver on those commitments is to develop a good system for
financing health care. All nations share the ambition to build robust health funding systems, but
it is challenging to do so due to the rising cost of healthcare and the underwhelming economic
performance of developing nations, particularly in Africa. economies in particular makes it
difficult to meet this objective. Because of the expanding global understanding of the tight
connection between economic development and health, the function of health economics is vital
today. Furthermore, child mortality is a significant measure of socioeconomic progress because
childhood health is one of the major determinants of health and productivity in later life.
Research into the causes of high child mortality around the world has identified a number of
upstream factors, including the residential setting, economic area, and educational attainment of
the parents. As a result of the fact that nations with high levels of health spending have been
successful in lowering their death rates, countries have focused policies on health-care spending.
(2004) Dhrifi

World average life expectancy at birth was much below 40 years at the turn of the 20th century,
and real per-capita GDP was less than a sixth of what it is today. Many of the primary factors
promoting economic growth during this period have been extensively discussed in economics
literature (such as technological progress, education, and physical capital accumulation). The
effects of personal actions, medical care, and the environment on health are also widely known.
However, knowledge of the connections between economic growth and health is still not fully
developed. The many economic and social channels via which health influences economic
growth as well as the reverse causal pathway through which economic success fosters greater
health make it difficult to accurately describe this relationship. Aside from that Both population
health and economic growth are promoted by factors including institutional advancements and
technical advancement. (2018) (Bloom, Kuhn, & Prettner)

2.2.3 Agriculture Expenditure on Economic Growth

(Megbowon et al. (2019) Using annual time series data from 1983 to 2016, investigated the
effect of government spending on agricultural output in South Africa. This study made use of the
ARDL model and the Bounds Cointegration test. According to the study, government support for
agriculture has a significant impact on agricultural output. It demonstrated that agricultural
productivity and government spending on agriculture had a beneficial long-term relationship.
(Chandio et al. 2016) examined the effects of government spending on Pakistan's agriculture
industry and economic expansion using time series data spanning the years 1983 to 2011 that
were gathered from the Pakistan Statistical Year Books and the 2015 Economic Survey of
Pakistan. The research utilized Johansen, Phillip Perron, and Augmented Dickey-Fuller (ADF)
unit root tests. OLS (Ordinary Least Square) method and co-integration test. According to the
Johansen Co-integration test, economic growth, agricultural outputs, and government spending
on agriculture are all related over the long term. The findings of the regression analysis showed
that government spending and agriculture outputs have a big impact on economic growth.
(Management 2020)

(Ihugba et al. 2013) used time series data from 1980 to 2011 to experimentally assess the
relationship between Nigerian government spending on the agricultural sector and its
contribution to economic growth. They used the Engle-Granger two step modelling (EGM)
method to co-integrate based on pairwise Granger Causality tests and unconstrained Error
Correction Model. Their analysis revealed a cointegration between the contribution of agriculture
to the GDP and total government spending on agriculture. They concluded that any decrease in
government spending on agriculture would be detrimental to Nigeria's economic expansion.

(Ewubare and Eyitope 2015) looked at how government expenditures affected Nigeria's
agricultural industry. The Johansen co-integration methods, the ordinary least square (OLS) of
multiple regressions, and the for the analysis, an error correction model was employed. They
made the implication that government spending benefits Nigeria's agriculture industry. They
advocated increasing support for Nigeria's agriculture industry in light of the aforementioned
findings. The study did not evaluate whether agricultural public spending is an outcome or a
cause of agricultural output, which could have skewed the results in either a positive or negative
direction. (Impact and others, 2020)

However (Mainali 2011) using the data in parenthesis, which are t-statistics of the coefficients
investigated the role of government expenditure in Nepal's agriculture sector from 1975 to 2012.
He suggested that, in contrast to non-agriculture investment in Nepal, government expenditure in
the agricultural sector is crucial for fostering economic growth. The research discovered that
government spending on irrigation, land reform, and agriculture has a considerable positive
impact on agricultural output. (Journal, Center, and UK,2022)
(Itodo, Apeh, and Adeshina 2012) used data from the National Bureau of Statistics and CBN
statistical bulletins to examine the effects of government spending on agriculture and agricultural
output in Nigeria from 1975 to 2010. They estimated a multiple regression using the Cob-
Douglas production function and OLS econometric technique. agriculture output in relation to a
few factors. The findings showed a favorable but minor correlation between government
spending on agriculture and agricultural output in the study's purview. (Anyanwu, et al. (2013)
used multiple regression analysis to analyze the structure and growth of the GDP over the 49-
year period (1970–2012), sourced from the CBN statistical bulletin of 2013, and found that
agriculture was one of the most important significant determinants of Nigeria's GDP, with a clear
dominance. GDP, service output, industrial output, building and construction output, and
wholesale output were the variables considered. The research also revealed that other industries
have substantial impacts on agriculture and, consequently, the GDP (De & Dkhar, 2018)

(Matthew and Mordecai 2016) Agriculture, which involved the management of domesticated
animals and plants, was the primary development that fueled the birth of human civilization (i.e.,
crops) generating food surpluses that facilitated the growth of stratified, more densely inhabited
communities. Agriculture includes a wide range of specialties and methods, such as ways to
increase the area appropriate for growing plants by creating irrigation systems and digging water
channels. Agriculture continues to be based on the cultivation of crops on arable ground and the
pastoral herding of livestock on rangeland. (Edun, Ademola, Olaleye, Olusuyi, & 2020)
Local/municipal, regional, and federal governments all spend money on agriculture each year
from their annual budgetary allotments. It consists of the costs associated with crop
development, seed manufacture and distribution, fertilizer acquisition, agricultural
mechanization, extension services, pest and disease management, soil conservation, irrigation,
and research. In (Buari, Alexander, Saheed, and Alfa 2020)

(World Bank2007). The majority of the population in the region finds employment in
agriculture, which also provides the majority of the rural people with their primary source of
income and accounts for more than 30% of the territory's total GDP. It also provides the primary
food source and produces 90% of the country's earnings in foreign exchange. More than 70% of
the region's industry depends on agriculture for its basic resources. In Sub-Saharan African
nations, where the majority of the population lives in the countryside, agriculture output accounts
for more than 75% of total employment (World Bank, 2006). Therefore, one of the most
significant government tools for encouraging agriculture in developing nations like SSA is
investing on it economic growth and alleviating poverty in rural areas . (Feleke, 2018)

(FOA 2013) economic growth   One of the primary sources of investment in agriculture is
government funding. "Investing in agriculture is one of the most successful ways for decreasing
poverty and hunger and boosting sustainability," the State of Food and Agriculture 2012 report
stated. However, the share of agriculture in government spending is dropping in many countries
(Brief, 2019), making it more difficult to combat poverty in rural regions despite mounting
evidence that agricultural investment is crucial to fostering agricultural growth and reducing
poverty and hunger. 2018 (Feleke)

(Akintunde2012) asserts that agriculture is the foundation of global industrialization. Every

industrialized nation experienced an agrarian period. The adage that agriculture is the backbone
of the Nigerian economy emphasizes how important agriculture is as a growth engine.
Government spending is crucial for the development of agriculture. This is based on the
economic theory that agricultural progress entails farmers adopting new production techniques
and buying new raw materials. Sadly, the rural capital market is unable to provide the necessary
funding to support such advances. agricultural development as a result Finding appropriate
funding for agricultural development thus becomes the issue with agricultural financing.
(Uremadu, Ariwa, and Uremadu

2018)

The agriculture sector contributes significantly to the development of a country in terms of

raising government revenue, infrastructural growth, living standards, and contribution to the
Gross National Product. Agriculture is the foundation of any country's economy and, in a broad
sense, encompasses the entire range of agricultural technology related production of plants and
animals, including crop production, soil cultivation, and livestock (GNP). For human survival, it
is crucial to make wise investments in the agricultural sector, particularly in the area of food
security. In developing countries, public expenditure is the main tool of government to promote
economic growth, which is a necessary component for agricultural development, even though the
financial sources of public expenditure in the taxation form decrease the taxpayers' benefits and
also reduce benefits associated with economic growth. (Jingdong, Chandio, Jiang, Rehman,
2016)

Local/municipal, regional, and federal governments all spend money on agriculture each year
from their annual budgetary allotments. In 2013 and 2015, the Food and Agricultural
Organization (FAO) recommended that 25% of the government's capital budget be allocated to
projects for agricultural development. This recommendation was based on costs associated with
crop development, seed production and distribution, fertilizer procurement, agricultural
mechanization, extension services, control of pests and diseases, soil conservation, irrigation, and
research. (Buari et al2020.)

2.3 Relationship between Government Expenditure and Economic Growth

According to the Keynesian school of thought, government expenditure can help an economy's
various sectors, such as the agriculture sector, thrive. Therefore, through multiplier effects on
aggregate demand, a rise in government spending is anticipated to result in an increase in
employment, profitability, and investment. As a result, government spending boosts overall
demand, which, depending on expenditure multipliers, results in higher output. According to
Keynes, government spending is an exogenous factor that can be used as a tool for policy to
encourage growth.

(Ranjan and Sharma (2008). The impact of government development spending on India's
economic growth from 1950 to 2007 is assessed by Using multiple regression, the study
discovered a substantial positive relationship between government spending and economic
growth. They also discovered that the variables were co-integrated. This suggests that both short-
term and long-term economic growth are affected by government spending. 2020 (Buari et al.)
2.4 Chapter Summary

The term "government expenditure" refers to the money that a government gives to federal
agencies as well as local municipal councils, with the goal of promoting peace and cooperation
through economic prosperity. Changes in producing goods are a component of economic growth,
and they frequently occur within a year. According to economic theory, economic growth refers
to an annual rise in the value of material production expressed in terms of GDP or national
income. The main definition of economic growth is the rise in a nation's overall output. It is the

rise in the number of things consumed and produced. with services. Both imparting knowledge
to others and receiving it from someone else are activities of education. Education also
encompasses the system of teaching as a whole as well as the information acquired via formal
education or instruction. Health is more than just the absence of disease or disability; it is a
condition of whole physical, mental, and social well-being. Key challenges in the modern period
and society are to build social welfare and to allow, support human autonomy and dignity.
Producing crops and raising livestock is the art and science of agriculture. Agriculture, in its
broadest meaning, refers to the full set of technologies involved in the production of usable
goods from plants and animals, such as soil cultivation, crop and livestock management, and the

activities of processing and marketing.

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction
This Study was focused on the impact of government expenditure on economic growth in
Somalia, both primary and secondary data were heavily utilized, and a variety of study
methodologies were combined to obtain the necessary data in a variety of ways, including annual
time series data. This chapter provided an example of a thorough explanation of the research
technique. This chapter covers research design, study area, model specification, data collection,
and data analysis procedures to more clearly define research methodology. Annual time-series
data from the World Bank database, the International Monetary Fund, and seismic data for the
sample period 1992–2021 were used in this study. To identify correlations between the
independent variables (three variables) and GDP, the dependent variable used to estimate
economic growth, ordinary least-squares (OLS) regression was utilized. An economic model was
used to determine the impact of government expenditure on economic growth. Using the OLS
technique, using the best linear unbiased estimator (BLUE) properties and a computational
procedure that is extremely straightforward, numerical estimates of the coefficients in the
econometric equation were obtained.

3.1 Research Design

this study used an explanatory research design (The impact of government expenditure on
economic growth in Somalia). The framework for research, or research design, is what ties all
the components of a research process project together. A design is used to describe how all of the
research's major components interact with one another in an effort to address its major research
questions. It is described as the scheme outline or plan utilized to produce solutions to research
challenges by Orodho (2005). It involves setting up the parameters for data collection and
analysis in a way that tries to balance relevance with research goal.

3.2 Study Area

According to research, which was done in Somalia, Somalia is a coastal country in Eastern
Africa on the Horn of Africa. Djibouti and Ethiopia border its northern and central regions. The
Gulf of Eden is to the north of Somalia, and Kenya is to its southwest border. Its eastern border
is the Indian Ocean. According to the Somali federal system, the country is divided into six
federal member states: Galmudug, Hirshabelle, Jubaland, Puntland, South West Somalia, and
Somaliland. The country is divided into eighteen distinct regions, including: Awdal, Bakool,
Banadir, Bari, Bay Galgaduud, Gedo, Hiiraan, Lower Juba, Lower Shabelle, Middle Juba,
Middle Shebelle, Ethiopia is the source of the Shebelle and Juba Rivers, which travel south
through the nation on their way to the Indian Ocean. Only during the wettest times of the year
does the Shebelle reach the ocean.

3.3 Model Specification

Mathematical specification contains the transformation of a projected theory into mathematical
form. In this study, the following mathematical obvious appearance is proposed. The functional
relationship among, Education expenditure (EDE), Health expenditure (HE), Agriculture
expenditure (AGE) and the economic growth of Somalia is expressed as the following:
GDP = F (EDE, HE, AGE) ……………………………… (1)

GDP is gross domestic product,

F is the function of economic growth.

EDE is education expenditure.

HE is health expenditure.

AGE is agriculture expenditure.

The equation can be additional written in linear form as follows:

Ү = β0+β1 + β2 + β3 + µ ……………………………… (2)

Ү = β0+β1EDE + β2 HE + β3AGE + µ

Where Ү is economic growth (dependent variable); β0 is a constant; β1-β3 are slope coefficients
that measure the marginal increment of economic growth; (EDE, HE, AGE) Education
expenditure, Health expenditure, Agriculture expenditure Respectively (independent variables);
and µ is the error term or residual (Other explanatory variables not mentioned in the model).

3.5 Data Analysis

Data collection is the process of collecting data from all relevant sources in order to solve the
research problem, test the hypothesis, and assess the results. Data collecting methods are
classified into two types: secondary data collection methods and primary data collection
methods.
This analysis was mostly based on secondary data from the Ministry of Finance and Economic
Development of Somali Revenue, as well as numerous publications from the International
Monetary Fund (IMF) and World Bank (WB) covering the period from 1992 to 2021.

3.5 Data Analysis

Using the OLS technique, which has the best linear unbiased estimator (BLUE) qualities and a
computational process that is very straightforward, numerical estimates of the coefficients in the
econometric equation were obtained. The data were tabulated and cross tabulated using EViews
(EViews 9). After that, the researchers interpreted the frequency tables and produced a summary
of their findings, recommendations, and findings.

3.5.1 Descriptive Statistics Analyses

Descriptive statistics were utilized in this part. Mean, maximum, minimum, standard deviation,
skewness, kurtosis, and Jarque-Bera statistics are the major statistics of interest. The next
sections give the fundamental steps for computing and interpreting the statistics. Additionally, a
histogram of the frequency distribution of time series data was provided in this section. The
histogram counts the number of observations that fall into each bin after dividing the series range
—the space between the maximum and minimum values—into many equal-length intervals or
bins. The following considerations were utilized in the study to interpret the descriptive statistics:
Mean: It estimates the series' mean value. It can be calculated by summing the series values in
the current sample and dividing the result by the total number of observations. The series'
maximum and minimum values for the current sample are called Max and Min.
Standard Deviation (Std. This is a measurement of the series' dispersion or spread. Thus, the
series' divergence from its mean increases (decreases) as the value increases (decreases).
Skewness: It gauges how asymmetrically the series' mean-centered distribution is distributed.
Positive skewness denotes a large right tail for the distribution, while negative skewness denotes
a long-left tail. A normal distribution has zero skewness. Kurtosis: It measures the peakedness
or flatness of the distribution of the series. For kurtosis, the normal distribution is 3, but if it
exceeds this value, the distribution is assumed to be peaked relative to the normal, but if it is less
than 3, the distribution is flat relative to the normal.
3.5.2 Unit Root Analyses

Since the shocks in stationary time series were transient and eventually lost their impact as the
series returned to their long-run mean values, understanding the difference between stationary
and non-stationary time series is crucial. Non-stationary time series were required to contain
permanent components. Because of this, a nonstationary time series' means or variance vary on
time, which leads to an excessive number of situations in which (a) the series lacks a long-run
mean to which it returns. (b) As time approaches infinity, the variance approaches infinity as
well. A formal approach was created by Dickey and Fuller in 1979 to test non-stationary data.
This test's basic premise is that testing non-stationary data is equal to testing stationary data. the
existence of a unit root. The following test, which is based on the straightforward auto
regression, is therefore the best. The null hypothesis is accepted as of a unit root test and it was
determined that there is no stationary process if the value of the ADF statistics is smaller in
absolute terms than the critical value and the value of the (p-probability) is more than 5%. The
null hypothesis of a unit root, on the other hand, is rejected and it is determined that there is a
stationary process if the value of the ADF statistics is more in absolute terms than the critical
value and the value of the (probability) is less than 5%.
3.5.3 Regression Analyses

Time series techniques are used in the current study because they are the most suitable for
achieving the goals of the study, which include answering each question and putting each related
hypothesis to the test. These are associated with the type of data (government expenditure on
economic growth). The study relies on prolonged observation, which necessitates the use of time
series techniques. The majority of earlier investigations in the literature have used time series
methods and data. The methodology's theoretical foundation is a multiple regression model
because this study employed four variables. As a result, the regression government spending on
economic growth was examined to ascertain the relationship between these three variables.
Normality tests is critical to avoid upsetting the results and reaching bias. A normality test was
performed on the multivariate items before further analysis of the focus variables in this study,
such as EDE, HE, and AGE, and Economic growth utilizing GDP as the dependent variable.
Several techniques were employed to test normality, including histogram analysis and the Jarque
Bera test, which is a goodness of fit test that determines if the sample data's skewness and
kurtosis match a normal distribution. To assess the presence of serial correlation, which is
typically observed in repetitive patterns and specifies that the value of a variable affects its future
value, model fitting assumptions require an assessment of the link between a given variable and
itself over various time periods. The Breusch-Godfrey test, devised by Trevor S. Breusch and
Leslie G. Godfrey, was used to test serial correlation. Heteroskedasticity refers to scattering
differences and arises when a variable's variability is unequal throughout a succession of values
of a second, predictive variable. The linear regression model was tested for heteroskedasticity
using the Breusch-Pagan-Godfrey test (Breusch and Pagan 1979). Multicollinearity, also known
as collinearity, occurs when two or more independent variables are significantly correlated, and
hence one variable may be predicted with a high degree of accuracy from the other.
3.5.5 Test for Co-Integration
The orders of integration that interconnects the required economic growth model is already
stated. All variables of order one is integrated (1). The long-run link between government
spending and economic growth is then estimated using Johansson maximum likelihood methods
and the two-step Engel and Granger process. The lag order and deterministic trend assumption
for the ADRL must be stated before proceeding with the Johansen co-integration technique. The
assumption of including a constant but no trend was accepted throughout the unit root test.
 CHAPTER FOUR

DATA PRESENTATION ANALYSIS AND

DISCUSSIONS OF FINDINGS
The previous part described the research technique used to test the proposed Theoretical model
to the test and answer the study's research objectives. This part, divided into six subsections,
presents the conclusions of the data analysis. The first subsection provides a descriptive analysis
of the model's major variables; the second subsection explains the unit root test; and the third
subsection explores the model test. The fourth and fifth parts discuss the normality test and data
validity measures, respectively; while the sixth subsection discusses the hypotheses investigated
and model fitness findings.

4.1 Descriptive Statistics

figure 4. 1 education expenditure

Figure 4.1.1 Education Expenditure

As shown in the above figure, Somalia's education spending was not stable between 1992 and
2021 due to a lack of an economic system central government that allocated resources equally
among people, but from 2012 to the time of writing, education expenditures have been rising
significantly due to the implementation of Somalia's central government, which on the other
hand increased the country's GDP at that time.

figure 4. 2 Health expenditure

Figure 4.1.2 Health Expenditure

As indicated in the above figure, between 1992 and 2021, Somalia's health expenditure was
falling. Since 2012, Somalia's government spending has been improving day by day, and public
hospitals have been covering societies' health, which affects the country's economic growth.
During the early periods of observation, health expenditure was reduced, resulting in civil wars
in the country and the disappearance of public health enterprises.
figure 4. 3 Agriculture expenditure

Figure 4.1.3 Agriculture Expenditure

As illustrated in Figure 4.3, Somalia's AGE has remained on the line from 1992 to 2006,
indicating a drop in GDP during that time period. And has begun to rise in the period between
2008-2012 and 2014-2020, increasing the country's GDP.
4 .1.4 Descriptive Statics in Group
Table 4.1.1 Computing Descriptive Statics in Group

DESCRIPTIVE AGRI EXP EDU EXP HEL EXP

STATISTICS OF
THE
VARIABLES
 365164.2 583490.7  109197.3
 Mean  
 Median 144645  144645  4890675

 1558891  2576543  4890675

 Maximum

403905.7  635086.7  1516914

 Minimum

403905.7  635086.7 1516914

 Std. Dev.  
 1.546315 1.878465 1.464599
 Skewness

4.353903 5.579116  3.582721

 Kurtosis

14.24677 25.95795  11.14971

 Jarque-Bera

0.000806 0.000002  0.003792

 Probability

 10954926 32759201
17504722
 Sum   
Sum Sq. Dev. 4.73E+12 6.67E+13
1.17E+13
table 4. 1 computing descriptive statistic in group

The following points were utilized in the study to intercept this table of descriptive statistics
summary: Mean computes the series' average value. Max and Min represent the series' maximum
and minimum values in the current sample. The standard deviation (Std. Dev.) of a series
measures its dispersion or spread. Thus, the higher (lower) the value, the greater (lesser) the
series' departure from its mean. Skewness measures the asymmetry of the series' distribution
around its mean. A positive skewness indicates that the distribution has a long right tail, while a
negative skewness indicates a long-left tail. A normal distribution has no skewness. Kurtosis:
determines if the series' distribution is peaked or flat. The normal distribution for kurtosis is 3,
however if it exceeds this number, the distribution is presumed to be peaked (leptokurtic)
compared to the normal, and if it is less than 3, the distribution is supposed to be flat
(platykurtic) relative to the normal.

4.2 Unit Root Test

The Augmented Dickey-Fuller test finds that all variables have unit roots at a constant level,
indicating that the variables are not stationary because the p-values are more than 5%.
Furthermore, the absolute values of all key t-statistics are bigger than the test statistics, indicating
that we cannot reject the null hypothesis, H0. At a high level, the model is undesirable since all
variables have a unit root. When the variable is converted into the first difference, agriculture and
health have unit roots, the p-value is greater than 5%, and the absolute values of all critical t-
statistics are less than the test statistics, indicating that these variables are non-stationary at the
first difference, with the exception of education, which becomes stationary at the first difference
with intercept, and we accepted the null-hypothesis. All p-values are less than 5% when variables
are transformed at the second difference level with a constant, and the absolute values of t-test
statistics are higher than those of crucial t-test statistics. As a result, in our model, we employed
second differences.
Table4.2 Stationary of the Variables
ADF Variables Constant without trend Constant with trend Interpretation

Level

GDP -2.981038 -2.981038 Not Stationary

Edu -2.967767 1.899541 Not Stationary

life -2.976263 -2.381401 Not Stationary

income -2.971853 -0.149739 Not Stationary

1st Difference

GDP -2.981038 -0.428213 Not Stationary

HE -2.971853 -3.051408 Not Stationary

AGE -1.953858 1.915614 Not Stationary

EDE 1.953858 -3.749493 Stationary
2nd Difference

GDP -10.66768 -11.595026 Stationary

Edu -6.569612 6.894380 Stationary

life -1.953858 -2.217298 Stationary

income -2.976263 -4.901332 Stationary
table 4. 2 unit root test

4.3 Regression Analysis

After confirming the presence of a unit root at the second difference order of each variable, we
used the OLS model to investigate the potential association between the dependent variable and
the independent variables. In this study, the influence of government spending, which serves as
an explanatory variable, and economic growth are nearly identical. Other variables outside
government spending under scrutiny may have an impact on economic growth, such as
education, health, and agriculture spending.
Table 4.3 Regression Analysis

Variable Coefficient Std. Error t-Statistic Prob.  

HEALTH 28.93603 45.46823 3.595957 0.0013

AGRICULTURE -59.43764 127.947 2.792924 0.0050
ED 159.8214 173.0665 -1.044130 0.0060
C -4.485209 1.203208 12.33872 0.0000

R-squared 0.781494    Mean dependent var 2.6709

Adjusted R-squared 0.768974    S.D. dependent var 1.3409
S.E. of regression 4.6508    Akaike info criterion 42.87795
Sum squared resid 5.6318    Schwarz criterion 42.06478
Log likelihood -639.1693    Hannan-Quinn criter. 42.93772
F-statistic 71.20572    Durbin-Watson stat 0.795322
Prob(F-statistic) 0.000000

table 4. 3 regression analysis

Researchers focused on the following elements of the best regression model in this model: R-
square value, probability (F-statistics), probability of individual variable (t-statistics), and
Durbin-Watson stat. The model has a good R-square value of 0.781494, which is more than
60%, indicating that the model is well-fitted to the regression line or the data is well-fitted. The
probability of individual variables (t-statistics) show that HE and AGE are significant to explain
in the model because their individual P-value is less than 5%, and the probability of all
independent variables HE and AGE are significant because their jointly P-value is less than 5%,
implying that all independent variables are significant to explain the dependent variable.
4.4 Model Assumption Test
4.4 .1 Normality Distribution

figure 4. 4 Normality test

Normality tests are required to prevent altering the results and reaching erroneous conclusions. A
normality test was performed on the multivariate items before further analysis of the focus
variables in this study, such as education index, life expectancy, and per capita income using
economic growth as the dependent variable. Several techniques were employed to test normality,
including histogram analysis and the Jarque Bera test, which is a goodness of fit test that
determines if the sample data's skewness and kurtosis match a normal distribution. This study's
sample size is more than eleven years, increasing the likelihood that the data are normally
distributed. Therefore, the frequency analysis revealed that the skewness and kurtosis scores
were less than the specified cut off scores of 2 and 10, respectively. Furthermore, histogram
analysis revealed that the data were regularly distributed, as shown in Figure above. As a result,
parametric tests were used to conduct additional analysis. The Jarque Bera statistic was 2.800531
and the accompanying p value was 0.246532, which is greater than the significance level of 0.05;
consequently, the null hypothesis cannot be rejected, and the error terms are normally
distributed.

4.5 Model Significant Test

4.5.1 Serial Correlation Test
The assumptions of model fitting need an examination of the connection between a given
variable and itself over various time intervals to assess the presence of serial correlation, which is
frequently found in reiterating patterns and specifies that the value of a variable affects its future
value.

Table 4.4 Breusch-Godfrey Serial Correlation Lm Test

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 0.097330     Prob. F (2,24) 0.3499

Obs*R-squared 0.713482     Prob. Chi-Square (2) 0.2846

table 4. 4 Breusch-Godfrey Serial Correlation LM Test

to test serial correlation, we utilized the Breusch-Godfrey test established by Trevor Breusch and
Leslie Godfrey to measure serial correlation. According to the Breusch-God frey serial
correlation LM test, the model was free of serial correlation, showing that the error terms were
not auto linked. The abs R-squared was (0.713482), and the equivalent P-value was (0.2846),
both of which were greater than the 5% significance level. As a result, the null hypothesis cannot
be rejected, and no serial correlation exists.

4.5.2 Multicollinearity
multicollinearity means If there is a significant correlation between any two independent
variables, the problem of multicollinearity exists. The multicollinearity problem makes a
significant variable irrelevant by raising its standard error, and as the t-value decreases, the p-
value rises, making the variable insignificant. Generally, if the sum of the coefficient values of
the variance inflation factor (VIF) is less than 10, the variables are significant. Table 6
demonstrates that our independent variables are significant since the guideline sum of coefficient
values of variance inflation factor (VIF) is less than 10, implying that we failed to reject the null
hypothesis that regressors do not have a problem with multicollinearity.

Table 4.5 Variance Inflation Factors

Coefficient Uncentered Centered

Variable Variance VIF VIF

HEALTH  1.02E-09  31.55418  6.154934

ED  0.000746  8.901177  5.794754
 AGRICULTURE  0.017940  18.23599  9.881056
C  3.09E+09  10.79006  NA

4.5.3 Heteroscedasticity
Heteroscedasticity refers to scattering differences and arises when a variable's variability is
unequal across a series of values of a second, predicting variable. The linear regression model
was tested for heteroscedasticity using the Breusch-Paranode test (Breusch and Pagan 1979). A
good model is homoscedastic, which means that the variance of the model's error terms is
constant. The obs R-squared (1.629509) and p-value (0.6527) were both greater than the 5%
level of significance, as indicated in the table below. The null hypothesis was therefore accepted,
and the error terms were heteroskedastic.

Table 4.6 Heteroskedasticity Test Breusch Godfrey Heteroskedasticity

Heteroskedasticity Test: Breusch-Pagan-Godfrey

F-statistic 0.497785     Prob. F (3,26) 0.6870

Obs*R-squared 1.629509     Prob. Chi-Square (3) 0.6527

Scaled explained SS 1.940213     Prob. Chi-Square (3) 0.5849

table 4. 5 heteroskedasticity test Breusch Godfrey Heteroskedasticity

4.6 Model Cointegration
Table4.7 Model Cointegration Test
Series: GDP ED AGRICULTURE
HEALTH 
Lags interval (in first differences): 1 to 2
Unrestricted Cointegration Rank Test (Trace)

Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**

None *  0.960437  22.6384  47.85613  0.5600

At most 1 *  0.544881  25.43226  29.79707  0.4520
At most 2  0.408487  14.17795  15.49471  0.1982
At most 3  3.74E-05  0.001010  3.841466  0.9747

 Trace test indicates no cointegrating eqn(s) at the 0.05 level

 * denotes rejection of the hypothesis at the 0.05 level
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)

Hypothesized Max-Eigen 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**

None *  0.960437  47.20613  57.58434  0.6700

At most 1 *  0.544881  21.25431  31.13162  0.4481
At most 2  0.408487  14.17694  24.26460  0.2516
At most 3  3.74E-05  0.001010  3.841466  0.9747

 Max-eigenvalue test indicates no cointegrating eqn(s) at the 0.05 level

 * denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

Assumptions hypothesized that none of the cointegration equations at the first level of the model
at 5% and that the null hypothesis would be rejected if the value of the trace and max statistics
exceeded the 5% critical value. This model has fit cointegrated equations and there is a long run
relationship between variables, according to the cointegration equation analysis at the Johansen
cointegration test, and the null hypothesis was rejected.

Table 4. 6 Model Cointegration test

Table 4. 8 co integrating and long run forms
Selected Model: ARDL (1, 1, 1, 0)

Co integrating Form

Variable Coefficient Std. Error t-Statistic Prob.   

D(HEA) 1255.526686 894.775552 1.403175 0.1745

D(AGR) -2691.493116 1203.163849 2.237013 0.0357
D(ED) 226.074103 116.625974 1.938454 0.0255
CointEq (-1) -0.567045 0.139074 -4.077275 0.0005

    Co inteq = GDP - (4522.2045*HE - 729.2635*AGE +398.6884*ED +

        1331789880.9318 )

Long Run Coefficients

Variable Coefficient Std. Error t-Statistic Prob.   

HEA 4522.204536 1116.184426 4.051485 0.0005

AGR -729.263463 1365.350868 -0.534122 0.5986
ED 398.688382 200.089730 1.992548 0.0289
C 1331.931771 1575.770622 8.433829 0.0000

As shown in the table above, the test result demonstrated that there is a long-run relationship
between GDP and the explanatory variables HE, AG, and ED. In our model, we rejected the null
hypothesis of no long run cointegrating relationship between these variables. The estimated long-
term relationship coefficients for HE, AG, and ED are substantial. The estimated coefficients for
HE and EDE are positive, while AGE is negative. According to this table, health and education
expenditures have a statistically significant positive impact on economic growth, whereas

table 4. 7 Cointegrating and Long Run Forms

agriculture expenditure has a statistically significant negative impact on economic growth.
Agriculture expenditure, on the other hand, has a positive impact on economic growth in the
short run.

Table 4. 9 bounds test

ARDL Bounds Test

Date: 06/02/22 Time: 16:43
Sample: 1992 2021
Included observations: 30
Null Hypothesis: No long-run relationships exist

Test Statistic Value K

F-statistic  8.618195 3

Critical Value Bounds

Significance I0 Bound I1 Bound

10% 2.72 3.77

5% 3.23 4.35
2.5% 3.69 4.89
1% 4.29 5.61

table 4. 8 Bounds Test

table 4. 9 Bounds Test

In the first stage of ARDL modeling for our Model was specified the relationship between
(dependent variable) and other explanatory variables, the existence of long run cointegration
relationship for the variables is investigated by computing the F test statistic. Given the
observations available for estimation the maximum lag order for the various variables in the
model is set at two (m=2) and the estimation is carried out for the period 1992 to 2021. The F
statistic for testing the joint null hypothesis that there exists no long run relationship between the
variables as defined above is given in the last row of the results table of the Hypothesis testing
using Eviews9. The computed F statistic is F = 8.618195 The relevant critical value bounds for
this test as computed at the 10% level is given by 2.72 – 3.77 and 5% level are given by 3.23 –
4.35. Since the F statistic greater than the upper bound of the critical value bound(F>critical
value of 5% 8.618195>4.35) so the null hypothesis of no long run relationship between the
variables is reject, we accept our model has long –run association. F-statistics is Decision criteria
for bound test: if Fstatistics is greater than the critical value for the upper bound I (1) than we
can reject the null hypothesis if F-statistic is lower than the critical value for the lower bound
I(0) we do not reject the null hypothesis.

4.7 Discussions of findings

The main purpose of this study was to examine the effect of government expenditures on
economic growth in Somalia. Annual time series data from 1992 – 2021 were used. Regression
analysis was conducted on the following variables in this research study: Economic growth is the
dependent variable, whereas health spending, agriculture spending, and education spending are
the independent variables. The adjusted R-square, which is equal to 0.781494, or 78%, indicates
the model's fitness. The consequence is that 78% of the variation in Somalia's economic growth
is explained by Health, Agriculture, and Education expenditure, while the remaining 22% is
explained by the stochastic error factor, which is designed to include any variable that affects
economic growth that is not accounted for in the model to evaluate the overall significance of the
model, the F-statistics are utilized. To test the individual statistical significance of the
parameters, the t-statistics of the corresponding variables were measured using the E-views
software's computation development. At the 5% level of significance, this indicates that the
whole model is significant and well fit. In this work, the unit root test and the Augmented
Dickey-Fuller (ADF) were used, and it was discovered that all variables had a unit root, and H0
is rejected. However, at the second difference I (2), all of the variables in the model become
stationary; also, in this paper, the normality test was applied, and the examination of the
frequencies revealed that the scores for skewness were significantly higher. and kurtosis were
also less than the specified cutoff values of 2 and 10, respectively, for normally distributed data.
Also, the study was used, and the Jarque Bera statistic was 2.800531, with a corresponding p-
value of 0.246532, which is greater than the significance level of 0.05; thus, the hull hypothesis
cannot be rejected, and the error terms are normally distributed. Similarly, the study employed
the serial correlation test to recognize the assumptions of model fitting, and the study was
frequently discovered in repetitive patterns and indicates that the value of a variable affects its
future value. To test serial correlation, the Breusch-Godfrey test was used and the
BreuschGodfrey serial correlation LM test presented that the model was no free from serial
correlation, indicating that the error terms were auto correlated. The obs Rsquared was 0.713482,
and its P-value was 0.2846, higher than the chosen significance level of 5%. Therefore, the null
hypothesis was not rejected, and there is no serial correlation. In addition to the heteroskedastic
test the study was used the Breusch-Pagan-Godfrey test to test the linear regression model for the
presence of heteroscedasticity and study found that the model is homoscedastic and the variance
of the error terms of the model is constant, as the obs R-squared 1.629509 and p-value 0.6527
were higher than the level of significance of 5%. Therefore, the null hypothesis was accepted,
and the error terms were heteroskedastic. Additionally, Multicollinearity which is also called
collinearity, means if there is high correlation between two or more explanatory variables the
problem of multicollinearity exists. Multicollinearity problem makes significant variable
insignificant by increasing its standard error, and t-value goes down then p-value increase so the
particular variable become insignificant. Normally if the coefficient values of variance inflation
factor (VIF) is less 10 those particular variables are significant. Table 4.5.3 shows that our
independent variables are significant at all because as the guideline sum of coefficient values of
variance inflation factor (VIF) is less than 10 meaning that we repressors have no a problem of
multicollinearity.
Finally, the study was employed Johansen cointegration test at the long run cointegrated test and
the study was found that this model has fit cointegrated equations and there is long run
relationship between variables and the null hypothesis was rejected. On the other hand, the. The
estimated coefficients are positive for HE and EDE and negative for AGE. This table indicates
that health expenditure and education expenditure are a positive statistically significant impact
on economic growth while agriculture expenditure has a negative significant impact on economic
growth. But agriculture expenditure in the short-run has a positive impact on economic growth in
the first stage of ARDL modeling for our Model was specified the relationship between
(dependent variable) and other explanatory variables, the existence of long run cointegration
relationship for the variables is investigated by computing the F test statistic. The computed F
statistic is F = 8.618195. The relevant critical value bounds for this test as computed at the 10%
level is given by 2.72—3.77 and 5% level are given by 3.23 – 4.35. Since the F statistic greater
than the upper bound of the critical value bound the null hypothesis of no long run relationship
between the variables is reject.

CHAPTER FIVE
CONLUSIONS AND RECOMMENDATIONS
5.1 Conclusion
This chapter describes the study's findings as well as some policy recommendations that must
be implemented in order to enhance government expenditure. The primary objective of this
research was to assess the relationship between government expenditures and economic growth
in Somalia using annual data from 19921 to 2021. Descriptive and time series techniques were
used to determine government spending trends and to assess the impact of government
expenditure on economic growth (GDP). These are unit root tests (ADF tests), a co-integration
test (Johansen's procedure and Engle and Granger) to determine the presence of long-run
relationships between economic growth and government expenditure, error correction method
and Granger-causality tests, the Breusch Pagan-Godfrey Heteroskedasticity test, the Breusch-
Godfrey Serial Correlation LM test, and the Breusch-Godfrey Serial Correlation LM Test and
Ramsey RESET test of misspecification was used to test for appropriateness of the estimations
in order to avoid any spurious regression. The results of unit root suggested that all variables in
the model were stationary after second difference. The results from regression analysis revealed
that education expenditure health expenditure have positive impact on GDP of Somalia while
agriculture has a negative impact on GDP. This indicates that the increasing of the government
spending on education and health sectors in Somalia is good for wellbeing of Somalia and
hence virtuous for economic growth. Serial Correlation were employed to establish the
relationship between education spending health spending and agriculture spending welfare of
Somalia and the result revealed that there is statistically significant positive relationship
between health expenditure, agriculture expenditure and education expenditure on GDP of
Somalia. Long run coefficient integration test was employed and the estimated coefficients of
the long run relationship are significant for HE, AG, ED. The estimated coefficients are positive
for HE, and ED and AGE has a negative for GDP. This indicates that health expenditure and
education expenditure are positive statistically significance on gross domestic product, while
agriculture expenditure a has a negative significant impact on gross domestic product. The
computed F statistic is F = 8.618195. The relevant critical value bounds for this test as
computed at the 10% level is given by 2.72 – 3.77 and 5% level are given by 3.23 – 4.35. Since
the F statistic greater than the upper bound of the critical value bound the null hypothesis of no
long run relationship between the variables is reject.

5.2 Recommendations

Since data has been collected, evaluated, and concluded, the researchers of this study propose
public institutions (government), policymakers, and other stakeholders in Mogadishu, Somalia,
to take these proposals in order to ensure the country's economic growth.

 The government ought to include an increase in the quality of education and health sectors in
its economic policy to enhance human capital, which can eventually boost the economy's
production capacity and, inevitably, have a substantial impact on social welfare and
economic growth.

 A higher education institution, such as a university, college, or other political academies,

must conduct well-organized study and debates on illiteracy issues and solutions.

 the government should improve its long-term strategy toward investing in excellent
education sectors, health sectors, and agriculture. In order to achieve economic growth
through labor-intensive industrialization,

 The government promotes the workforce in technical and vocational training programs at
both public and private higher education institutions to raise their technical skill levels.

 Finally, the researchers have not found a study in Somalia that is identical to this one, and
since this study is insufficient in terms of public spending and economic growth, more
research is strongly advised.