Evaluating the effects of trade openness and FDI on CO2 emissions in Somalia

This study examines the asymmetric impacts of trade openness and foreign direct investment (FDI) on carbon emissions in Somalia, a fragile, conflict-affected economy characterized by weak environmental governance (EG) and heavy reliance on charcoal energy. Using annual data from 1980 to 2023, the study employs the Nonlinear Autoregressive Distributed Lag (NARDL) method to capture both the short- and long-term asymmetric trade openness and FDI on CO 2 emissions. Positive shocks to trade openness and FDI significantly increase carbon emissions, supporting the Pollution Haven Hypothesis (PHH), while negative shocks reduce emissions only partially and temporarily, consistent with the Environmental Kuznets Curve theory. The analysis also identified energy consumption and economic growth as the primary drivers of emissions, reflecting Somalia’s dependency on fossil fuels and biomass, with urbanization exerting a smaller but significant effect. Unlike prior studies, this study explicitly accounts for Somalia’s post-conflict institutional fragility, infrastructural limitations, and strategic trade routes. Short-run dynamics indicate a rapid adjustment toward long-run equilibrium, suggesting a strong transmission of economic shocks to environmental outcomes. The findings underscore that trade liberalization and FDI, in the absence of robust environmental regulations and renewable energy adoption, exacerbate environmental degradation. The policy implications include integrating environmental safeguards into trade and investment policies, prioritizing renewable energy transitions, and strengthening institutional capacity to ensure sustainable development in fragile economies.