Albania

Ricardo Hausmann

Ricardo Hausmann

Director
Rafik Hariri Professor of the Practice of International Political Economy, HKS

Ricardo Hausmann is the founder and Director of Harvard’s Growth Lab and the Rafik Hariri Professor of the Practice of International Political Economy at...

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Office Address: Rubenstein-338

Mailing Address
John F. Kennedy School of Government
Mailbox 34
79 JFK Street
Cambridge, MA 02138

Assistant: Alexandra Villegas
p: 617-496-3740
O'Brien, T., et al., 2020. Accelerating Growth in Albania through Targeted Investment Promotion, Cambridge: Growth Lab at Harvard's Center for International Development.Abstract

The investment promotion process in Albania is underperforming versus its potential. Between 2014 and 2018, the Albanian economy saw accelerating growth and transformation, which has been tied to the arrival of foreign companies. However, Albania has the potential to realize much more and more diversified foreign direct investment (FDI), which will be critical to accelerating growth in the period of global recovery from the COVID-19 pandemic. As the Albanian economy weathers the storm of COVID-19, it is critical to look to the future by enhancing the investment promotion process to be more targeted and proactive such that Albania can attract transformative global companies aligned with the country’s comparative advantages. This is not only a critical step toward faster and more resilient economic growth in Albania; it also happens to have very high returns in comparison to the limited fiscal spending required to implement the actions required.

The targeted investment promotion approach discussed in this note would capitalize on Albania’s many existing comparative advantages for attracting efficiency-seeking FDI. It would not displace Albania’s Strategic Investment Law nor the activities of the Albanian Investment Corporation (AIC), which aim to expand the country’s comparative advantages. Efficiency-seeking FDI — global companies that expand into Albania to serve global markets because it makes them more productive — do not need extensive tax incentives, regulatory exemptions, or other subsidies. In fact, an overreliance on these approaches can crowd out firms that do not want or need to rely on government support. Adding targeted investment promotion to Albania’s growth strategy would lead to more jobs, better quality jobs, more inclusive job growth, faster convergence with the income levels of the rest of Europe, and ultimately less outmigration.

This note summarizes the Growth Lab’s observations of the investment promotion process in Albania, over the last year in particular, and lays out recommendations to capture widespread opportunities for economic transformation that have been missed to date. The recommendations provided at the end of this note provide a roadmap for building an enhanced network for targeted investment promotion that is specific to Albania’s context. These recommendations recognize the current constraints that the COVID-19 pandemic creates but also look past the pandemic to prepare for opportunities that will emerge during the global recovery.

Tim McNaught

Tim McNaught

Former Research Fellow, BSC

Tim McNaught was a Fellow at CID's Building State Capability program from 2016-2019, where he focused primarily on engagements with the governments of Sri...

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John F. Kennedy School of Government
Mailbox 34
79 JFK Street
Cambridge, MA 02138
Matt Andrews head shot

Matt Andrews

Edward S. Mason Senior Lecturer in International Development, HKS
Faculty Director, Building State Capability, CID
Matt Andrews' research focuses on public sector reform, particularly budgeting and financial management reform, and participatory... Read more about Matt Andrews
Mailing Address
John F. Kennedy School of Government
Mailbox 31
79 JFK Street
Cambridge, MA 02138

Assistant: Stacy Hannell
617-496-1477
stacy_hannell@hks.harvard.edu
matt_andrews@hks.harvard.edu
p: 617-494-8039

Economic Growth and Institutional Strengthening in Albania

Our work in Albania started in fall 2013 as a way to tackle the slowdown in economic development. At that time, the external sources of growth – remittances and exports – had stalled. Solvency constraints and unfavorable credit market conditions restricted the effectiveness of the fiscal and monetary policies. These factors conspired against an economic recovery and demanded that Albania rethink the processes leading to its growth.

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