Has Albania's Economic Development Stalled? Investigating the Role of Institutional Factors in Albania's Economic Performance

Abstract

This study focuses on the institutional factors of Albania's economic development, from a comparative, dynamic, and regional European perspective. We use longitudinal data for the years 2002, 2014, and 2019 and a small selection of 13 countries in the region and some EU member states. Descriptive statistics, graphical representation, and econometric modeling are used for data analysis. The purpose of the study is to discuss, in real and comparative terms with the region and beyond, the economic growth of Albania based on the GDP per capita indicator, as well as to identify and evaluate dynamically the role of institutions in the country's development through important institutional factors, such as the effectiveness of government, rule of law, corruption, etc. The analysis shows that Albania's economic performance is weakover the last two decades. This is reflected in the insufficient relative growth of GDP per capita, the small increase in per capita income, and especially in the low increase in income for every 1% of relative growth. In these indicators, Albania continues to be consistently in the lowest positions in the region and beyond. The study highlights the strong link between economic growth and the effectiveness of government, the rule of law, and weak control over corruption. Improving corruption control by one unit in the range (-2.5 to 2.5) is expected to improve GDP per capita by an average of about 2.2 times. Improving the rule of law by one point is expected to improve GDP per capita on average by about 2.4 times. The country's sluggish economic performance is mainly attributed to weak institutions.

Received: 4 March 2021 / Accepted: 6 May 2021 / Published: 8 July 2021