Foreign Direct Investments (FDI) and Productivity in Albania

Abstract

Foreign direct investments (FDI) inflows are a very important factor for the economic growth especially for the small and underdevelopment economies. This paper aims to give an overview of the performance of FDI in Albania and their contribution in the economic development. The study will be extended to the other SEE countries and a comparative analysis will be presented. Focusing in Albania this study tries to investigate and analyze the dependency between FDI and labour productivity through a simple two steps statistical analysis. At first it is calculated the labour productivity time-series through using the OECD approach. Afterwards the two steps statistical analysis refers to the correlation analysis through Pearson Correlation Coefficient and to the causation analysis through Granger-Causality Test. As main results can be pointed out a strong positive correlation between FDI and productivity and one side causation since productivity can cause FDI, but not the contrary. Inflows in Albania have grown significantly over the last eight years increasing by more than 3.5 times and the share in GDP increased from 3.6% in 2006 to approx. 10.5% in 2013. However the FDI stock per capita in Albania is still the lowest in the South East European region. Also the productivity in Albania is lower in the region with 19% compare the average EU productivity in 2012.