Foreign aid and agricultural productivity nexus: Examining the interaction effects of market integration and foreign assistance in Somalia

This study investigates the relationship between international aid and agricultural productivity in Somalia, examining how market integration moderates aid effectiveness. Using annual data from 1980–2022, the study applies an Autoregressive Distributed Lag (ARDL) framework to assess the conditional impacts of aid modalities on crop production. Interaction effects between aid types and trade openness are modelled explicitly, with rainfall and temperature included as controls. Results show that neither food aid nor development aid produces significant unconditional effects on agricultural output. However, market integration shapes both relationships: food aid’s potential disincentive effects weaken as markets integrate, while development aid becomes less effective under higher trade openness. Trade openness itself delivers larger agricultural benefits than either aid modality. These findings suggest that aid effectiveness depends on market integration levels, and that accounting for market connectivity when designing interventions may improve outcomes in fragile states.