Institutional implant and economic stagnation: a counterfactual study of Somalia

This paper investigates the impact of international state-building efforts on economic development in Somalia. Owing to non-existent or poor-quality national income accounts, we use satellite data capturing nightlight emissions to measure economic activity. Using the synthetic control method, we find that the establishment of the Transitional Federal Government in 2004 was associated with economic stagnation relative to the preceding years, when Somalia did not have a formal central government. The result remains whether we enter the total lights emitted from the country or the distribution of lights across the country. Our empirical findings are consistent with the idea that the exogenously imposed Transitional Federal Government destabilized the nation by creating inconsistencies with the informal institutions that had led to development during Somalia’s statelessness.