Why Foreign Direct Investment- Albanian Case

• Author: Edlira Luçi, Argita Frasheri
• Pages: 536-545

European Integration - Realities and Perspectives. Proceedings 2015

536

Why Foreign Direct Investment- Albanian Case

Edlira Luçi1, Argita Frasheri2

Abstract: Among other financial in flows, foreign direct investment makes a major stimulus to economic

growth in many developing countries. The ability to deal with two major obstacles, namely, the shortages of

financial resources and the lack o f technology and skills, has put foreign direct investments in the centre of

attention for policy-makers, particularly in developing countries. Albania is committed to maintaining an

open environment for investments. This is vital for a long-term and sustainable economic growth. As a low-

savings developing economy, with high domestic investment requirements, Albania needs to attract foreign

direct investment in ord er to support domestic investment financing req uirements. However, Albania has not

been successful in obtaining substantial and consistent FDI inflows. Furthermore, the meagre inflows that the

country has received have not been utilized appropriately to en hance the economic performance. The type of

FDI and its structural composition matter as much for economic growth. This paper reviews t he recent

evidence on the scale of FDI to Albania. The paper reviews also some o f the main areas of the existing policy

framework for in ward FDI in Albania among the major factors determining foreign companies' decisions to

invest in Albania. We discuss th ese issues and try to make the case for a more coherent, harmonized and

transparent framework to cover all foreign direct investment into Albania. The regulation of inward

investment is one of several policy and institutional variables likely to influence the volume of FDI.

Key words: foreign direct investment (FDI); developing countries; policy framework; structural composition;

Albania

1. Introduction

The Asian currency crisis (1997) and 10 years later the global financial crises renewed among other

the significance of prudential management of foreign capital flows in countries where domestic

financial markets are not yet fully developed. The crisis poses many challenges including how to best

supervise financial institutions, how to efficiently manage foreign exchange reserves, and how to

prudentially manage foreign debt and investments3. The Asian crisis was a consequence of

overinvestment, some or much of it misallocated (Stiglitz, 1997).

From the viewpoint of foreign resource mobilization, the crisis highlights the urgent need to re -

examine the optimal combination of foreign capital i.e., proper composition of concessional public

1 Associate Professor, PhD, University of Tirana, Faculty of Economy,  

No. 183, Tirana, Albania, Corresponding author: edliraluci@feut.edu.al.

2 M.A in Economics, Bank of Albania, Albania, Address: Lagja "28 Nëntori", Rruga "11 Nëntori", pranë Prefekturës,

Elbasan, Albania, Tel.: 00 355 69 20 95 774, E-mail: afrasheri@bankofalbania.org.

3            

http://www.unicc.org/unctad/en/pressref/prasia98.htm.