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, researchers at the Growth Lab who have been involved with various aspects of this project.

The team paints a picture of our work in Albania, delving into the current situation in the country as it relates to COVID-19 and it’s macroeconomic consequences, our support in strengthening government capacities using tools like the Albanian Investment Corporation; the country’s current infrastructure landscape and plans for improvement and expansion; the importance of studying the Albanian diaspora; and Albania’s plans for accession to the EU.

Listen to the second episode in this Growth Lab Albania project outreach series: Iterations of a Growth Diagnostic: The Case Study of Albania.

Transcript

Katya Gonzalez-Willette: [00:00:00] Hello and welcome to another episode of the Growth Lab podcast series. 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 that showcases our engagement in Albania by gathering members of our research team to discuss their work, hosted by research assistant Jesse Lu. This podcast features Ermal Frasheri, Tim O'Brien, Shreyas Gadgin Matha, Spencer Bateman, Ricardo Villasmil, and Daniela Muhaj, researchers at the Growth Lab who have been involved in various aspects of this project. The team paints a picture of our work in Albania, delving into the current situation in the country as it relates to COVID-19 and the pandemic's macroeconomic consequences; our support and strengthening government capacities using tools like the Albanian Investment Corporation; the country's current infrastructure landscape and plans for improvement and expansion; the importance of studying the Albanian diaspora; and finally, Albania's plans for accession to the EU. [00:01:08][67.5]

Jessie Lu: [00:01:11] The Growth Lab at CID has been engaged with Albania for nearly eight years now and throughout this time we've conducted a wide range of projects exploring different themes and different topics. The diversity in these projects has been especially salient in the most recent phase of the project in Albania, which started in late 2019. And so in the next few weeks, we're really looking forward to sharing updates on this current phase of our work through both podcast and blog posts and to kick off this project outreach campaign. I'm excited to welcome various members of the current Albania team at the Growth Lab to discuss brief updates on each aspect of the project with the goal of providing a holistic overview of our recent work in Albania. My name is Jessie, I'm a research assistant at the Growth Lab, and I'm joined today by various members of our team. And we're just really excited to share what we've been doing. So let's get started. Tim, I'm going to start with you. Last July, we published an updated growth diagnostic to the original analysis that we had done in 2017. And I was wondering if you could start by summarizing our growth diagnostic of Albania and discussing how COVID-19 may affect Albania's long term growth trajectory. [00:02:14][62.5]

Tim O’Brien: [00:02:16] Sure, absolutely. So last July, we posted a visual story on our new Viz Hub, which was an exciting opportunity to communicate our diagnostic in a new way. But to explain a diagnostic, let me first take a step back and ask what the growth problem has been in Albania. So whenever we do a growth diagnostic, we have to start with a problem, just like if you're doing a medical diagnostic, you want to know what problem am I trying to understand the cause of, if they have a headache, it's a different type of diagnostic that I would do than if I have chest pain or something else, you know, and different diagnostics require different types of tests and different urgency of tests, too. So this is actually the third time that we've really done a systematic diagnostic of the Albanian economy. The first time was when the project started in 2013. And the growth problem at that time was really manifested in collapsing rate of economic growth for several years leading up to 2013, kind of headed towards a growth rate of zero and possibly even recession. And then we studied the process of growth at that time and and we found a really deep and urgent constraint emanating from the energy system and macroeconomic imbalances and risks that resulted from insolvent energy system. A few years later, in 2016, it became time for us to do another diagnostic because it was clear that that those underlying issues had been addressed in meaningful ways and we had to start with a new growth problem. So by 2016, growth had recovered, but it was around 2.5% per year, which really isn't fast enough for Albania to converge with the income levels of the rest of Europe. So our growth problem at that time in 2016 was why isn't Albanian growth accelerating faster to support faster convergence with the rest of Europe? And I'll just revisit a little bit of what we learned at that time to set the stage for our last diagnostic, which took place in 2019. So in 2016, the electricity system had been meaningfully transformed to a point that it was no longer a drag on growth, but it was actually a driver of foreign investment. And at that time, we were also seeing that other usual suspects that might slow down growth like other types of infrastructure, roads, transportation, connectivity, we're also not finding the growth process based on our diagnostic tests, nor were overwhelming problems in the financial system, more or less. If you had a profitable investment to make, you could access credit, although there were some gaps. The problem that we were seeing as of 2016 was really a low level of profitable investment opportunities. So there were a few firms demanding access to finance or using the infrastructure available to them. For instance, there was land available on the Tirana / Durres corridor that wasn't being utilized. We also did a deep investigation of rule of law problems, corruption and other similar types of constraints. And we found issues there, but nothing that could explain the low level of growth overall. And in fact, for businesses that were operating in Albania already, those issues didn't stop them from growing. What we did find, very interestingly at that point was that Albania faces a sort of know how constrained in a sense the pace of growth in Albania is going to be constrained by the pace at which it accumulates new productive knowledge from abroad. And uses that knowledge to produce new and diversifying goods and services in Albania. And this constraint really, really made sense, and you could trace it in the emergence of new businesses over time in Albania because of Albania's unique history of being so closed off from the world for so long, so effectively since the early 90s, Albania had to start a capitalist economy from scratch and you could trace the slow and gradual accumulation of knowledge to diversify the economy since then. And at the same time, we could also trace a slow and gradual accumulation of public sector capabilities, state capabilities that sort of coevolved together with the growth of the private sector. So in 2016, that was what we thought was most important is, is how can you accelerate the pace of the acquisition of Global Know-How, especially through foreign direct investment, companies moving into Albania and continue this process of state capabilities evolving to meet the changing needs of a changing private sector? And it turned out that rule of law issues, corruption, even the perception of corruption and crime were a problem for this process to jumpstart because outside of Albania, people didn't necessarily know how the country was transforming and that held back interest in investing. So that's all just a reminder of where we were in 2016. By 2019, we thought it was time to revisit the Growth diagnostic again. And we found a new growth problem now, growth wasn't slow at 2.5% per year or something like that, it had accelerated substantially and by 2018 it was above 4%, more than double the rate of the European Union. So convergence was happening. And this growth rate was in line with much of the rest of the Western Balkans. So growth was kind of in line with the region converging with Europe. But the question was, could it accelerate faster? So we investigated that. And in late 2019, we did diagnostic tests on that problem and we found that the same setup held that held in 2016, the growth will continue to be constrained by the amount that know how can accumulate in the country. And the reason why growth has accelerated from 2016 to 2019 was a gradual and continual accumulation of Know-How upgrading of businesses, an increase in economic complexity in the country, but slow and gradual. And something that was weak was the diversity of foreign direct investment. So a lot of it, by 2019, remained energy-intensive FDI to produce electricity in Albania and a relatively low level of FDI in manufacturing or business services and even tourism in comparison to potential. This was important to us because it helps in every diagnostic is important to us because they help us to structure what kind of activities we could do as a Growth Lab project. And since the constraint to growth in Albania is the pace at which it can accumulate more and more, know how to diversify into more and more goods and services. That was a key motivating principle behind our activities leading into 2020. So one activity that we were working on was helping the government to create an Albanian investment commission. Which is really about generating those new state capabilities that are changing private sector demands that are more complex than traditional public sector services and need a special organization in order to supply those. Another important initiative was related to targeted and proactive investment promotion to reach companies that we know can thrive in Albania but might not know about Albania or might not know how Albania has been changing. And toward that end, we we created a tool to identify industries and actually companies whose business models seemed consistent with Albania's comparative advantages, like low cost energy, access to Europe, as well as its comparative disadvantages. For instance, the judicial reform that's going on in Albania has created delays in the court system. So businesses that require heavy use of the court system are at a competitive disadvantage. And we were exploring patterns that drove forward diversified FDI in other countries in the region like Romania, that have experienced much more diverse and larger FDI flows over time, that have helped drive incomes up in those countries over time. So the diagnostic was a confirmation of the trends that we saw in 2016, but really a call to action for new government capabilities to jump-start faster growth in the private sector. And then, of course, COVID-19 hit in 2020. And that's really pushed us to do a number of different types of research to explore how Albania can be resilient to COVID-19 and maximize its response to COVID-19. So at the time of our diagnostic, we felt like this process of accelerating growth know-how acquisition was sufficient to be resilient to earthquakes. That happened in late 2019. But we weren't sure how resilient the process would be to the unprecedented shock of COVID-19. [00:11:44][568.2]

Jessie Lu: [00:11:47] Great. So continuing off of that line of thinking, Tim, as you just noted, COVID-19 has really been a challenge for Albania as it has been all across the world. And as we all know, a lot has changed in the world and in Albania since this diagnostic was published in 2019. So I'd like to turn to a Ermal, Shreyas and Ricardo and ask that you describe a little bit about the scene there today, especially focusing on how the pandemic and lockdown's have really impacted life in the country. [00:12:12][25.1]

Ermal Frasheri: [00:12:14] Thanks so much, Jesse. So this is a very important question that I'd like to touch base upon some of the broad trends about what has happened in Albania since COVID-19. And then my two colleagues, Shreyas and Ricardo, will provide more comments and feedback. So what happened to Albania? How do we understand COVID-19 there? So I will start by saying that COVID-19 came in the footsteps of two earthquakes, one in September and the second in November of 2019. And so by the time COVID-19 hit in March, Albania was already shaken by those two events and in particular by the November 2019 earthquake, which caused a lot of damages in some cities that were crucial to the Albanian economy, namely in Durres, and some also in Tirana and in the surrounding cities. So in effect, that shift of the government's perspective from pursuing the reforms that they had envisioned towards recovery and reconstruction. So in other words, cutting a long story short in Albania by March 2020 was really hit. And so with COVID-19, what happened was that for two months, Albania was in total lockdown. So from mid-March until mid-May essentially the country was under curfew. Over summer, the measures were relaxed. And then we saw a number of economic activities resuming their work. And then in fall again, Albania went into partial lockdown with softer measures, but still that affected it's economy. And then from January onwards, what we are seeing is efforts of the government to procure vaccines so either direct and bilateral negotiations with companies or partailly WHO, COVID-19 initiative and the process of vaccination is continuing. And the government forces that by June 2020, about 500,000 inhabitants will be vaccinated and that process will continue for the rest of the year. So I'll turn over to my colleagues now so that they can provide feedback, Shreyas, Ricardo floor is yours. [00:14:24][130.4]

Shreyas Gadgin Matha: [00:14:26] Thanks Ermal, as you astutely noted, the number of cases in Albania, as well as the length of the lockdown earlier in 2020. So around March to May was fairly mild, so the Albanian government adopted very quickly responses in order to curb the spread of COVID-19 and they worked Albania's COVID-19 numbers did not rise for the period of the lockdown and remained low until recently, when Albania has seen two big surges in COVID-19-19 cases. And despite these surges, Albania has managed to stay highly active in terms of upward mobility data. So even at the moment, compared to previous years, Albania has consistently high driving and working mobility percentages. And so that points to a milder impact on the day to day activities in Albania. However, Albania had severe economic impact that Ricardo is going to talk about next. [00:15:25][58.7]

Ricardo Villasmil: [00:15:26] Thank you very much. The first thing is to recall that Albania is highly dependent on tourism, its highly service economy, it depends on foreign exchange inflows from tourism to sustain its economy and its growth, as Tim suggested earlier. So it was particularly vulnerable to the COVID-19 shot. Exports in services, which mostly concentrated in tourism and travel, declined by 44% in 2020. So that's a big shock in a single year. And the adjustment went two ways. One is the households and firms constrained imports and they fell substantially. They fell by 27% in a single year. These are huge numbers from a macro perspective for a country of falling 27% in imports of goods in a single year. But of course, that is triggered by a fall of 44% again in the service economy. But the economy was able to finance that deficit from in the balance of payments through government borrowing. It had excellent access to the markets and was able to even over finance that deficit. And given that it's a temporary shock, that was a recommended thing to do. That was, I think, the proper thing to do with the temporary shock. Now, the thing is the uncertainty that lies ahead. How long will it take for tourism to recover? Most expectations say that this year will be still a COVID-19 year for countries like Albania. So 2021 is still going to be a tough year that will need financing. So we have recommended the authorities to be open to take advantage of as much concessional financing as they can because it not only needs it for the balance of payments, but also for the fiscal side, because the government finances also deteriorated sharply as a consequence of the contraction and the additional spending that was needed for social purposes to assist households and firms during COVID-19 and to attend the earthquake consequences as well on top of it. So we expect two large single digits, but large deficits in 2020 and 2021. And then for the country to start a process of fiscal consolidation moving forward again, this would be like the textbook example of how to confront a temporary shock to an economy. That is to smooth it out. The risks remain that this will extend in time. But as now, we have the vaccine and we're already implementing the vaccine both in Albania and overseas. It looks like 2022 could be a good year in terms of the recovery. Back to you, Jesse. [00:18:12][165.7]

Jessie Lu: [00:18:14] Great, thanks so much to all three of you, obviously, COVID-19, has been a really big shock to the Indian economy, but as a team, we're all still working on issues that will help the country, both right now in the short term, but also in the long term. So I want to shift focus now to the more specific topics that we've been working on. And I'd like to start by discussing the Albanian Investment Corporation. So Ermal and Spencer, why should there be a focus on improving institutional capabilities in Albania? And how do you think the government can utilize new institutions like the Albanian Investment Corporation and other innovative tools to increase its capabilities? [00:18:46][32.5]

Spencer Bateman: [00:18:48] Thank you, Jesse. We can think of institutional capacity building and its relationship with Albania and the reforms that Albania will make in the future and has made in the past as a bright idea, but with two particularly relevant components that are strategic capabilities and managerial capabilities. The governments institutions need to have the capacity to work with them so we can think of strategic capabilities as how institutions within the government can sift through the wide universe of external and internal ideas and recommendations regarding investments in reforms in Albania that they may make from the outside world. A country like Albania may receive not just broad ideas, but policy recommendations, specifically from foreign investors, foreign governments and even international institutions. Given Albania's history and relationship with the European Union, this is particularly relevant as European Union reforms will have a direct impact on Albania pursues its own objectives. Additionally, there is just a wide universe of ideas about development that Albania can draw on from other national experiences and has drawn on internally. The government is made up of various ministries and must work with public and private actors to generate strategies that are relevant to Albania. So a country with strong institutional capabilities and strong institutional capacity will be better able to sift through all this information that exists and develop more tailored strategies that are relevant to the Albanian context specifically, and that most reflect Albania's holistic interests rather than the interests of individual actors that offer the recommendations. We can think of managerial capabilities as how those strategies are then implemented and coordinated within Albania by its institutions. So institutions need to be able to evaluate its efforts and adapt as needed. This is an idea that COVID-19 has demonstrated globally throughout the past year and a half. Additionally, institutions within the government are often responsible for coordinating implementation efforts among the many internal actors that operate within a relevant sector. And they may need to coordinate those efforts with external actors as well. So an institution with strong managerial capabilities can avoid the sorts of coordination and communication failures which limit the effectiveness of reforms in the context of Albania. This has included a broader need to have some institutions operating sectorally better coordinate the various actors within the Albanian system, but also develop strategies that are more Albania focused rather than just information from the outside world. And this helps to avoid less cohesive implementation of reforms within the country that are the result of various actors pulling in different directions over different periods of time, which results in stategies that don't necessarily reflect a given goal that Albania has, but rather a multitude of goals that different actors within Albania have. So Ermal, if you'd like to talk a little bit more about how the Albanian Investment Corporation helps to address some of these issues and its role in Albania, I hand it off to you. [00:21:39][171.4]

Ermal Frasheri: [00:21:41] Thanks so much, Spencer. So it's very interesting how you frame the arguments in favor of building up institutional capacities and abilities in Albania and I will go a bit further to saying that the benefit of having strong institutions is that strong institutions to end up doing more. So you end up doing better and more effectively things that you already do as the government, and then at the same time you also develop more capacity and more space for doing other things. So this is very much a story with a as well. So the way how the Albania Investment Corporation grew is very much a bottom up approach to solving problems. So on the one hand, there was already a very rich literature on development about the need for states to pull their assets, their public assets to more effective use and the need to have tools, vehicles or capacities, as we call them, in order to develop those assets. And on the other hand, as well, read the rich. Intellectual scholarship experience has also been matched over time with a lot of examples from countries that have grown in the last six years. So in other words, the experience of having institutions or capacities that could do more effective use of public assets. Has already been trained not only in theory, but also practice, so there are many examples across the world. So, for instance, in Singapore, the Nordic countries in Canada and across the developing world where governments have set up institutions that will do several things in particular will manage better their their assets. Will create more diversity in their economies and that will bring more growth. And see, they also serve us signals so the rest of the private sector is setting up good governance standards across the board. So in the case of Albania, with they see what happened was that we over the time that we have been working now, we saw that there were several issues or problems, constraints, if you call them that, that the government faced. On the one hand, we saw that there were too many PowerPoint presentations by private investors, wanted to do things in Albania, but that's why it is interesting and good. On the one hand, it also is a problem. On the other hand, because it calls or it creates too much reliance on the private sector to do things that maybe the private sector is not well equipped to do. So that is the first. And the second is that, as with other public sector institutions across the world, those Albanian health public, some of them were able to use a lot of others who are not. And the third was that whenever there were investment projects happening in the country, which required some form of public input, the government will sell itself short. So famous cases in Albania is the case of the land which is given to investors in return for one euro. The problem with that is that the price of land was not really a concern. So there was no need to lower the price. The problem is that investors had about going to be investing a lot of different nature. And so the government was selling itself just short whenever it's created opportunities for private investors to come and invest in Albania. So that is in general the three main gaps that we had identified. And so with the AIC, essentially the AIC was set up as an institution to create capacities in the government to not only better use public assets. But also has the capacity that will do things that the private sector was not able to do. They'll provide the kind of services or the kind of inputs for which there are just no market yet. So that is, let's say, the backdrop to AIC. So what is AIC meant to do and how it relates to the government and to the private sector? So first of all, when it comes to the government, I see it is a tool in the hands of the government. So it's not there to take away the role that the ministries have in Albania, which is mainly or all that has to do with forming or creating public policy and implementing it, but also regulating sectors and also responding to individuals or companies. So, AIC, it's not there to tinker with that of contrary to its capacities in the hands of the government, the ministries, in order to do things that for one reason or another, they were not able to do so far when it comes to the private sector, on the other hand, the AIC not there to replace the private sector. Or to displace existing actors, the AIC of country is there to make it easier for private investors or private initiatives to invest in Albania and the kind of projects that so far they were not able to invest, for instance, special economic zones or marinas or logisitic projects, the kind of projects which are inherently complex, the kind of projects that require a lot of public input. And the kind of projects that will let the private sector is on its own is not equipped to do it. But on the other hand, also the government didn't have the capacity to provide those public inputs to those private investors. So this is a very see comes into play. So, Jessie, over to you. [00:27:22][340.7]

Jessie Lu: [00:27:23] Great, thanks so much to you both for sharing all that interesting information both about AIC and about broader questions that Albania is still grappling with. I'd like to turn now to the electricity sector and so Ricardo, I was wondering if you could talk a little bit about the significance of electricity in Albania and speak a little bit about the constraints that the electricity sector poses to growth and how the sector can be reformed overall. [00:27:46][22.3]

Ricardo Villasmil: [00:27:47] Sure, Jesse. Well, the electricity sector is a very interesting case from the two perspectives. We see our work at the Growth Lab from a research perspective and from a policy design and implementation perspective as well. And that is because Albania is a very unique case in terms of how it supplies its electricity needs. And it has built a large dependance on run of the river production around the world production is electricity production, that is from the, asthe name says, from the run of the river with little or no reservoir capacity. So it depends on how much the water flow is going at a particular moment in time. And that poses significant challenges for the planning of the system. And it's interesting to know how this came about in terms of the evolution of the sector. Albania used to depend on large hydropower plants that had reservoirs, limited reservoirs, but sizable. And as the energy needs of the country started growing, it started spending more and more on imports from neighboring countries. And in 2006 and 2007, 2008, the prices went up significantly. That led to significant deficits that could not or was not politically feasible to shift to consumers. So that led to huge deficits for the system. And the response was to start promoting investment in run the river hydropower small plants that would locally supply electricity and therefore lessen the need for imports. But that created a problem in itself. And that's interesting from the perspective of the energy sector, because the energy sector is particularly sensitive to decisions that have long term impact, sometimes don't see the effect in a given year or in two years, but it will accumulate over time. So the challenges that this poses for the system are enormous in terms of how to measure their production. How reliable is the production from these private run of the rivers contracts? And they over time have become even more expensive than imports themselves as the price of imports of energy from neighboring countries has gone down. So that has created a significant problem for the country in terms of the fact that they cannot pass those electricity costs to consumers. And that has led to significant cost that in 2018 and 2019 reached almost 2% of GDP. And the country has other problems as well. It has a high electricity losses in distribution as a consequence of outdated infrastructure and collection problems. And one of the things that poses a challenge for the medium term is the vulnerability of the country to climate change and to global warming in particular. Albania is one of the most vulnerable countries in that regard, and it obviously impacts the electricity sector given its extreme dependence on hydropower. So we in the growth lab have worked closely with the Albanian government on addressing these challenges. They're in the process of unbundling the electricity sector and going towards market-oriented, setting up prices and purchasing of energy. And it's a very complex process to transition from where they are right now to where they need to be. But again, it has been a very interesting experience, both from a research perspective and from a policy design perspective. [00:31:23][215.7]

Jessie Lu: [00:31:25] Great, thanks so much, Ricardo. Staying sort of in this realm of infrastructure. I'd like to turn now to the new airport in Vlore that the government has been exploring. And so our team has been providing support to the government around this proposed new airport. And Shreyas I'd like to turn to you now. I was wondering if you could speak a little bit about how the transportation landscape has changed in the last few years and how the country is trying to improve transportation, especially around air travel. Finally, if you could just speak a little bit about what policymakers should know as they expand investments in infrastructure projects, that would be really great. [00:31:59][33.9]

Shreyas Gadgin Matha: [00:32:00] Thanks, Jesse. First, in terms of what the transportation landscape within Albania looks like, so Albania neighbors, Greece, Kosovo, Montenegro, Macedonia, these are the land neighbors. So the number of countries that can access Albania directly by land are fairly limited. So in terms of providing access to tourism and export markets, transport is a crucial component of that process. And so Albania is also currently viewed primarily as a summer destination for a lot of tourists. And so most of the tourists coming in from outside of the country are also coming in from very close by by land in terms of air transport infrastructure. A World Economic Forum survey showed that Albania is very uncompetitive compared to its peers in terms of air transport infrastructure and ia fairly as far as items of ground transport. Almost 80% of Albania's tourists arrive by land, but having said that, Albania has had a major boom in terms of the number of tourists coming in in the past decade or so from around two million tourists in 2009 to almost six point five million by 2019. So that's a huge jump in a decade. And so it's a beautiful country. I myself had the privilege to visit and I was struck by all the beautiful destinations. I would definitely recommend to our listeners that you go check out Albania in terms of what the country has been trying to do to improve transportation, especially around air travel. The Albanian government has been trying to work on connecting the southern part of the country where a lot of the tourist destinations are concentrated. And it currently takes around four hours to get from the airport to one of the major destinations around, which is at the southernmost tip. And there have been major infrastructure projects, including roads that connect the south to the Tirana as well as the Vlore airport. The proposed airport could impact the cost, both in terms of the time and the monetary cost involved in traveling to the tourist destinations in the south in the middle of 2020 after COVID-19 hit the tender for the airport was suspended. One of the recent developments is that there has been some movement more recently in the last few months on the tenders, which was reopened and there has been an opening bid as well. So that's something that we are hoping to see some positive developments on that front in terms of what we learned and what policymakers should know as they expand these investments. One of the main things that we learned was that Albania's tourism markets are currently very sort of concentrated in countries that are very close by. And so we developed a gravity model using bilateral tourism data for the world to take into account factors such as countries that are coming to visit. How big are they in terms of their GDP pet capita, in terms of their population and so on? And we find that for Albania specifically, there are several countries that are heavily under touristed or in other words, there's a lot of potential and several countries that are farther away that will be visiting more. So countries such as France, Spain, Netherlands, Germany and others are all major markets that Albania has not been able to tap for tourism. In terms of both of the countries for Albania as well as the world tourism markets in general, Albania has not been able to attract countries farther away, even compared to benchmark countries. And so that's something that might have to be a focus area and a tourism infrastructure and services remain a major constraint. And Albania would have to focus on developing some of these some of these infrastructure in order to expand its markets. The second thing that we found was that building an airport does not ensure that the potential that the airport has for growing the economy would be realized immediately. There's a number of complementary sectors that have to be developed for this project to realize its potential. So areas around the airport to develop through an ecosystem that the airport port generates and benefits from so that are more direct and indirect impacts that airports have on both the regional and the larger economy. The direct impacts can be things like the activities directly generated by the transportation of cargo and passengers, as well as activities around the operations of the airport itself. So things like ground handling and customs, as well as the retail and food activities within the airport, there's indirect impacts as well. And so these are things like accommodation and food services surrounding airports and that are enabled by airport and tourism, those downstream taxation in the economy due to the demand generated by a lot of these sectors that rely on airports and by increasing the connectivity of the region and the flows of passengers and goods airports facilitate these economic activities. So the main role that the government would have to play is to facilitate these pathways for the airport to realize its impact. And some ways that this can be done is careful Real estate planning around the airport, developing complimentary infrastructure such as road transportation, to ensure that last mile connectivity, improved airport operations and minimizing the negative effects to bring the people on board. So things like environmental impacts, including noise, air pollution impacts, as well as the impacts of constructing the airport itself. And there were some initial concerns regarding the environmental impact on the flora area as well. So given all of this tremendous potential for the Vlors airport to positively benefit the Albanian economy and as long as all of these complementary actions, that could be a benefit for the ecom=nomy [00:37:39][338.3]

Jessie Lu: [00:37:41] So Shreyas, you described, when this airport is going to be realized and built, it will be really essential for bringing people into the country in order to boost the local economy. But as we all know, the flow of people is bidirectional across country borders. And we can also take a look at how Albanians connect with the rest of the world once we move beyond the country. Our team has been conducting research on and engaging with the Albanian diaspora for many years now. But Danielle, you've recently taken this analysis a bit further. So a lot of Albanians have migrated abroad, but also towards major urban centers within Albania. So what are some of the trends in the Albanian diaspora, especially among the youth and their attitudes toward the country? And what lessons can be learned from harnessing their Know-How? [00:38:21][39.7]

Daniela Muhaj: [00:38:22] Thank you for the question. Jesse, let me take a step back and explain what motivated our recent diaspora work in Albania. As Tim described earlier, our Growth diagnostic refresher in 2019 indicated that low accumulation of productive Know-How remained a binding constraint to the development process of the country. Now, with the country's youth moving abroad to pursue their education at higher and higher rates and skilled professionals opting to migrate instead of taking a job at home, the mechanisms and policies that could address the missing and growing know-how gap in Albania were not obvious. These trends are further exacerbated by an isolated past as well as low levels of efficiency-seeking inward FDI. So we decided to study and understand the migration process of the Albanians over the past two decades in order to identify if and how this new diaspora could be engaged to enable the diffusion of skills, technologies and knowledge even while they reside abroad. To your point, Jesse what we learned. Some of our findings confirm existing evidence on why people migrate and whether they intend to return, while others were more surprising. So one stark trend is the mass migration of younger and relatively higher skilled individuals during the two thousand departs from the migration trends that were characteristic of Albania after the fall of communism in the early 90s. The initial wave was mainly driven by political instability and economic insecurity, resulting in low income and low skilled migrants gravitating to neighboring Greece and Italy. The more recent wave emerged in response to increasing demands for better educational and employment opportunities, as well as a higher standard of living, which has given rise to a younger, more educated and higher skilled diaspora migrating to farther and richer countries. Interestingly, we find that internal migration is the first step for youth and high skill in preparation for moving abroad. So there's a strong tendency to move from remote areas of the country into Tirana in pursuit of education and employment opportunities. Migration. Now this trend makes sense, given that higher education institutions and Albania's economic activity are concentrated in the capital. But also we find that the geography of migration destinations is changing with countries like Italy, Greece and Turkey, which used to be primary destination countries until before the global financial crisis, now becoming steppingstone countries into more distant and higher income destinations like the United Kingdom, Western Europe, Nordic countries, the United States and Canada. Now, in terms of attitudes. Our survey finds a strong sentiment prevailing across the new diaspora with regard to widespread corruption, mistrust of public institutions, lack of meritocracy and suboptimal quality of services, including health and education in Albania. However, while perceived conditions at home might have led to a sense of detachment among the diaspora, the strong sense of belonging, national identity and family attachments translated to a higher desire and potential for engagement. We also did a follow up post COVID-19 survey on the larger Albanian diaspora. And here we find that while temporary, returned to COVID-19 did not necessarily increase the likelihood for a more permanent return. It did, in fact increase the probability of engaging more actively through remote opportunities or short term visits at home. What became really evident from our study was that the Albanian diaspora, even with the youth and high skills segment, is very diverse. Our findings suggest that targeted engagement initiatives should be designed around migrant journeys and life cycles. Migrants have different points of origin at home and host country destinations which shape their experiences and motivations to contribute to specific sectors and places within Albania. Also, the needs and the potential for engagement for Albanians living abroad varies drastically over their life cycle. So the yputh, on the one hand, mainly needs support to excel in their academic and professional experiences, while on the other hand, the more experienced and closer to retirement diaspora is better positioned to contribute to the development of Albania. Some specific initiatives and policies that emerged from our findings include an online youth diaspora summit catering to scholarship programs, study opportunities, summer or winter internships, job forums and other relevant issues of concern for the youth. For experienced migrants and professionals and more sector specific approach to professional exchange programs and funding for research projects in partnership with firms and universities would be more appropriate. Investors and entrepreneurs are more interested in seed funding and extended programs that help them identify investment or business opportunities at home. Returning migrants or potential returnees have an interest in startup business grants and so on. The Ministry of Diaspora has already taken various initiatives to increase diaspora participation and engagement. It will be important to capitalize on the existing momentum on diaspora programs and build a more decentralized ecosystem of initiatives moving forward. So this ecosystem should not only include government but also private sector, diaspora organizations and host country institutions in order to nurture a long term engagement strategy, but is not susceptible to the political cycle and therefore more sustainable. Finally, as Albania becomes better integrated in the region and the EU accession process continues to facilitate labor mobility, these policies and mechanisms for engaging Albanians while they reside abroad to mobilize their ever growing know-how in service of development at home will be crucial. They will enable the country to chart a more sustainable and inclusive growth path over the long term. [00:44:59][397.1]

Jessie Lu: [00:45:02] Great, Daniella. Thank you so much for that. Just to close up all this work that we've been doing has built on this long legacy of engagement that we've had. It speaks towards the past. It speaks towards the present and it speaks towards the future. But definitely something I think that is especially relevant for right now and especially relevant looking forward is the idea of European integration. So Ermal, just a close up and Albania, there's a strong emphasis on this European integration and what this means in terms of progress for the country. What explains this? Where does the assession to the EU stand and how can it be leveraged to support Albania's growth moving forward? [00:45:34][32.4]

Ermal Frasheri: [00:45:36] Fantastic. It's such a relevant question and topic as well, given at the moment where Albania is in relation with the European Union. So a few words about this. So the integration into the European Union constitutes what I call a modernization project for Albania. So in other words, it has political, It has cultural. It has ideological, It has also economic dimensions the week. Therefore, it's an all inclusive, all embracing project and process as well. Given that what is important for this process is to not be dimensioned along one or two objectives, in particular when we measure, what does the integration process mean for Albania to what that process actually looks like? There's a mismatch of objectives and goals. So in other words, this process of European integration also believers in such a way as to enable Albania to develop capacities in order to do well with its peers in the European Union. And the one way of doing so will be to provide greater leverage. The linkages between recalcitrance in Albania, always stronger sectors in the European Union, provide more capacities for accumulating know-how in Albania well then at the same time provide more tangible results for Albanian citizens so that they feel they're part of this major effort of being in the European Union. So in other words, the European Integration Project, although is proposals, the Modernization Project for Albania, all to focus a lot more on building the kind of capacities that will take the Albanian society and economy, steps closer to where the other European Union member states are at. So I would suggest this should be a goal for the next four, eight years that this process will take, so in order to create more alignment between European Union and Albania. There has to be more capacity building in Albania in order to transform its economy through diversity and higher complexity processes. [00:47:38][122.2]

Jessie Lu: [00:47:40] Great, thank you Ermal, and also a big thank you to the entire team for sitting down and having this conversation about Albania and all the work and the success that we've had and the progress that we've been making. So for our listeners, stay tuned because more things are coming out soon. And I hope that this episode gives a good picture of what we've been working on, where we're going, where we've been and what's going on in Albania right now. So thanks, everyone. [00:48:04][24.6]

Katya Gonzalez-Willette: [00:48:06] If you want to learn more about the Growth Lab latest research and events, please visit growthlab.cid.harvard.edu [00:48:06][0.0]