Europe

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.

Hausmann, R., et al., 2022. Cutting Putin’s Energy Rent: ‘Smart Sanctioning’ Russian Oil and Gas.Abstract

Following the Russian aggression against Ukraine, major sanctions have been imposed by Western countries, most notably with the aim of limiting Russia’s access to hard international currency. However, Russia remains the world’s first exporter of oil and gas, and at current energy prices this provides large hard currency revenues. As the war continues, European governments are under increased pressure to scale-up their energy sanctions, following measures taken by the United States, the United Kingdom, Canada and Australia. This piece argues that given the inelasticity of Russia’s oil and gas supply, for Europe the most efficient way to sanction Russian energy would not be an embargo, but the introduction of an import tariff that can be used flexibly to control the degree of economic pressure on Russia.

E-Letter in Science: How to weaken Russian oil and gas strength

Neffke, F., Hartog, M. & Li, Y., 2022. The Economic Geography of the War in Ukraine. Complexity Science Hub Vienna.Abstract

The war in Ukraine has been waging for a month now, not only causing human suffering on a massive scale, but also sending economic tremors that are felt far beyond the country’s borders. Since the collapse of the Soviet Union, Ukraine’s economy has been pulled between its strong historical ties with the Russian economy and the opportunities in forging new ties with the European Union (EU). With the help of Metroverse, an online tool for analyzing the local economies of over a thousand cities worldwide, and of the data that power this tool, we analyze the evolving economic relations between Ukraine, Russia and the West and weigh the consequences of their disruption.

Explore: The Economic Geography of the War in Ukraine 

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Media Release
Bloomberg Opinion: Markets Need to Lose the ‘Peace in Our Time’ Reflex

A Deep Dive on the Albania Investment Corporation

The Growth Lab has been engaged in an applied research project with the country of Albania since 2013. In this time, we have conducted research on numerous, diverse workstreams related to stimulating economic growth in the country.

During this research engagement, our team worked with policymakers on the creation of the Albania Investment Corporation (AIC), an entity within the Albanian government responsible for engaging with both the public...

Read more about A Deep Dive on the Albania Investment Corporation
Hausmann, R., et al., 2021. What Economic Complexity Theory Can Tell Us about the EU’s Pandemic Recovery and Resilience Plans. Growth Lab / European Politics and Policy.Abstract

A little over a year ago, the EU’s political leaders agreed on an unprecedented fiscal package – dubbed ‘Next Generation EU’ – to aid Europe’s recovery from the pandemic. Ricardo Hausmann, Miguel Angel Santos, Corrado Macchiarelli and Renato Giacon write that economic complexity theories can provide a useful tool for evaluating whether the recovery and resilience plans submitted by EU member states to receive this funding are well-designed. Assessing the case of Greece, they argue that investments should be tailored toward export-oriented sectors and aim to help close the country’s product complexity gap with other EU states. 

Iterations of a Growth Diagnostic: The Case Study of Albania

The Growth Lab has been engaged in an applied research project with the country of Albania since 2013. In this time, we have conducted research on numerous, diverse workstreams related to stimulating economic growth in the country.

During this research engagement, our team conducted Growth Diagnostic analyses to understand and test potential binding constraints to economic growth in Albania. After the initial Growth Diagnostic study in 2013,...

Read more about Iterations of a Growth Diagnostic: The Case Study of Albania

A Snapshot of the Growth Lab's Research Engagement in Albania

The Growth Lab has been engaged in an applied research project with the country of Albania since 2013. In this time, we have conducted research on numerous, diverse workstreams related to stimulating economic growth in the country.

In this podcast episode, we kick off a larger outreach campaign, which showcases our engagement in Albania, by gathering members of our research team to discuss their work. Hosted by research assistant Jessie Lu, this podcast features Ermal Frasheri, Tim O’Brien, Shreyas Gadgin Matha, Spencer Bateman, Ricardo Villasmil, and Daniela Muhaj,...

Read more about A Snapshot of the Growth Lab's Research Engagement in Albania
Nano, E., Panizza, U. & Viarengo, M., 2021. A Generation of Italian Economists.Abstract

We examine the role of financial aid in shaping the formation of human capital in economics. Specifically, we study the impact of a large merit-based scholarship for graduate studies in affecting individuals’ occupational choices, career trajectories, and labor market outcomes of a generation of Italian economists with special focus on gender gaps and the role of social mobility. We construct a unique dataset that combines archival sources and includes microdata for the universe of applicants to the scholarship program and follow these individuals over their professional life. Our unique sample that focuses on the high end of the talent and ability distribution also allows us to analyze the characteristics of top graduates, a group which tends to be under-sampled in most surveys. We discuss five main results. First, women are less likely to be shortlisted for a scholarship as they tend to receive lower scores in the most subjective criteria used in the initial screening of candidates. Second, scholarship winners are much more likely to choose a research career and this effect is larger for women. Third, women who work in Italian universities tend to have less citations than men who work in Italy. However, the citation gender gap is smaller for candidates who received a scholarship. Fourth, women take longer to be promoted to the rank of full professor, even after controlling for academic productivity. Fifth, it is easier to become a high achiever for individuals from households with a lower socio-economic status if they reside in high social mobility provinces. However, high-achievers from lower socio-economic status households face an up-hill battle even in high social mobility provinces.

Hartog, M., Lopez-Cordova, J.E. & Neffke, F., 2020. Assessing Ukraine's Role in European Value Chains: A Gravity Equation-cum-Economic Complexity Analysis Approach.Abstract
We analyze Ukraine's opportunities to participate in European value chains, using traditional gravity models, combined with tools from Economic Complexity Analysis to study international trade (exports) and Foreign Direct Investment (FDI). This toolbox is shown to be predictive of the growth and entry of new exports to the EU's Single Market, as well as foreign direct investments from the Single Market in Ukraine. We find that Ukraine has suffered from a decline of trade with Russia, which has led not only to a quantitative but also a qualitative deterioration in Ukrainian exports. Connecting to western European value chains is in principle possible, with several opportunities in the automotive, information technology and other sectors. However, such a shift may lead to a spatial restructuring of the Ukrainian economy and a mismatch between the geographical supply of and demand for labor.

Public Policy in Action: What Did Working in Albania Teach Us about Economic Growth?

Since 2013, the Center for International Development has been collaborating with the Government of Albania to identify binding constraints to economic growth and create policy solutions to solve them. CID’s Growth Lab and Building State Capability programs have used the tools of growth diagnostics and problem driven iterative adaptation (PDIA) to help drive economic growth in the country. CID Researchers Ermal Frasheri and Tim McNaught have seen firsthand how theory informs public policy and how insights from public policymaking, in turn, enrich our theoretical frameworks. In this Growth Lab... Read more about Public Policy in Action: What Did Working in Albania Teach Us about Economic Growth?
O'Brien, T. & Lu, J., 2020. Can Albania’s Economic Turnaround Survive COVID-19? A Growth Diagnostic Update. The Growth Lab's VizHub. Publisher's VersionAbstract
The Growth Lab, which works with countries to identify obstacles to growth and propose targeted policy solutions, has been conducting applied research in Albania since 2013. This brief analysis takes stock of Albania’s economic growth prior to the COVID-19 crisis and what the strengths and weaknesses of the pre-COVID economy imply for recovery and the possibility of accelerating long-term and inclusive growth in the years to come. Albania is a place where much has been achieved to expand opportunity and well-being as growth has gradually accelerated since 2013-14, but where much remains to be done to continue this acceleration once the immediate crisis of COVID-19 has passed.
Santos, M., et al., 2020. Albania's Industry Targeting Dashboard. The Growth Lab's VizHub. Publisher's VersionAbstract
This industry targeting tool is custom-made for Albania. Users can choose any of 272 industries (based on NACE Rev. 2 industry codes) from the above drop-down list and explore the industry’s match with Albania’s current productive capabilities and comparative advantages and disadvantages. The tool is designed for use by government and non-government entities that seek to attract foreign direct investment (FDI) to Albania to accelerate economic development. Harvard Growth Lab research in Albania shows that the long-term pace of economic growth will be determined by the pace at which the country can absorb new economic activities and productive capabilities from abroad. Detailed information on the methodology and data sources used in this tool can be found here. This tool can be used in combination with the Growth Lab’s Atlas of Economic Complexity to explore patterns in global trade in very high detail.
Gadgin Matha, S., Goldstein, P. & Lu, J., 2020. Air Transportation and Regional Economic Development: A Case Study for the New Airport in South Albania.Abstract

Considering the case of the proposed airport in Vlora, South Albania, this report analyzes the channels through which a new greenfield airport can contribute to regional economic development. In December 2019, the Government of Albania opened a call for offers to build a new airport in the south of the country. While there is evidence indicating that the airport could be commercially viable, this does not provide a grounded perspective on the channels by which the airport could boost the regional economy. To evaluate how the new airport would interact with existing and potential economic activities, this report evaluates three of the most important channels of impact by which the airport could serve as a promoter: (1) economic activities directly related to or promoted by airports, (2) the airport’s potential contribution to the region’s booming tourism sector and (3) the potential for the country’s development of air freight as a tool for export promotion. In each of these three cases, the report identifies complementary public goods or policies that could maximize the airport’s impact in the region.

The operation of the airport itself could stimulate a series of economic activities directly related to air traffic services. Airports have the ability to mold the economic structure of the places immediately around them, acting both as a consumer and as a supplier of air transport services. Not only activities related to transportation and logistics thrive around airports, but also a variety of manufacturing, trade and construction industries. Nevertheless, the agglomeration benefits of a successful aerotropolis are not guaranteed by the construction of an airport. For South Albania’s new airport to actualize its potential returns, integrated planning of the airport site will be required, with focus on real estate planification and provision of complementary infrastructure.

Establishing an airport in Vlora has the potential to spur regional development in South Albania through facilitating the growth of the tourism sector and its related activities. Albania’s tourism industry has seen strong growth in the last two decades, but still lags behind its potential. Albania only has a strong penetration in the tourism market of its neighboring markets, and the high seasonality of the tourism season further limits the sector’s growth. The establishment of an airport in South Albania would ease some of the tourism industry constraints tied to transportation into the country and region. Given the high reliance of the tourism industry on its many complementary inputs, more than one area of concern may have to be addressed for the impact of the new airport to be maximized. Facilitating transportation access around the South Albania region and specifically to tourist sites; preparing natural and cultural heritage sites for tourism use and expanding tourism infrastructure to accommodate potential growth are some of the interventions analyzed.

Airfreight infrastructure could in theory provide opportunities to improve the competitiveness of Albanian exports but developing a successful air cargo cluster is no simple task. An airport can facilitate an alternative mode of transport for specific types of goods and hence promote a country’s exports. In Albania’s case, not only existing textile and agriculture products could be competitively exported through air freight, but also air freight itself could improve Albania’s position to diversify into “nearby” industries, identified by the theory of Economic Complexity. Nevertheless, an effective air freight strategy does not and cannot uniquely depend on the simple availability of a nearby airport. Air cargo operations require both traffic volume that Albania may not be able to provide, as well as complementary cargo-specific infrastructure. Although the potential for air freight in South Albania could be high, it is by no means a safe bet nor does it imply with certainty significant impact in the immediate future.

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