Albania

2020
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.

2020-06-cid-fellows-wp-127-albania-air-transport.pdf
Hausmann, R., Nedelkoska, L. & Noor, S., 2020. You Get What You Pay for: Sources and Consequences of the Public Sector Premium in Albania and Sri Lanka.Abstract

We study the factors behind the public sector premium in Albania and Sri Lanka, the group heterogeneity in the premium, the sources of public sector wage compression, and the impact of this compression on the way individuals self-select between the public and the private sector. Similar to other countries, the public sectors in Albania and Sri Lanka pay higher wages than the private sector, for all but the most valued employees. While half of the premium of Sri Lanka and two-thirds of it in Albania are explained by differences in the occupation-education-experience mix between the sectors, and the level of private sector informality, the unexplained part of the premium is significant enough to affect the preferences of working in the public sector for different groups. We show that the compressed distributions of public sector wages and benefits create incentives for positive sorting into the public sector among most employees, and negative sorting among the most productive ones.

Listen to a podcast with author Ljubica Nedelkoska as she discusses the factors behind public sector wage premiums. 

2020-02-cid-wp-376-public-sector-premium.pdf
2017
Klissurski, G. & Zuccolo, B., 2017. Diversification in the Industrial Sector of Albania: Identifying Strategic Areas, Center for International Development.Abstract

In this study, we analyzed Albania’s industrial exports using the frameworks of the Product Space and Economic Complexity in order to determine which products Albania could diversify into in the near future. In particular, we identified groups of products that are technologically close to those which Albania already exports and which at the same time are technologically more sophisticated (more complex) than Albania’s average exports. This analysis does not suggest that products that do not fulfill the criteria of technological proximity and product complexity should not be invested in. However, it suggests that some products may have higher chances of succeeding in Albania because of its existing technological capabilities, while also bringing about diversification towards more complex, higher value-added production.

We find that the top two sectors that satisfy the criteria of being in close proximity to the existing technological capabilities in Albania, while also having relatively highly complex products, are Plastics/Rubbers and Agriculture/Foodstuffs. Within each of these sectors, we list more specific products that make for good candidates for diversification.

albania_diversification_report.pdf
O'Brien, T., Nedelkoska, L. & Frasheri, E., 2017. What is the Binding Constraint to Growth in Albania?, Center for International Development at Harvard University.Abstract

About four years ago, at the onset of CID’s engagement in Albania, the country faced two issues that were threatening its macro-fiscal stability: a skyrocketing public debt and an insolvent, publicly-owned electricity distribution system that was plagued by theft and technical inefficiency. These two interlinked issues constrained both short-term economic growth and the ability of the country to develop new drivers of long-term growth. Over the subsequent years, the government was able to successfully respond to these constraints through a now-concluded IMF program and through a series of reforms in the electricity sector. With these constraints now relaxed, CID saw the need for a new analysis of the current and emerging constraints to growth in Albania. This analysis will guide future research and inform the government and non-government actors on emerging economic issues for prioritization.

While growth has accelerated over the last several years, to over 3% in 2016, this is not a pace that will allow for a rapid convergence of incomes and well-being in Albania with that of developed countries in Europe and elsewhere. This growth diagnostic attempts to identify the binding constraint to sustainably higher economic growth in Albania.

Recognizing that economic growth requires a number of complementary inputs, from roads to human capital to access to finance and many more, this report compares across eight potentially binding constraints using the growth diagnostic methodology to identify which constraint is most binding. This research was conducted throughout 2016, building on prior research conducted by CID and other organizations in Albania. Each constraint discussed in this report is cited by analysts within or outside the country as the biggest problem for growth in Albania. Through the growth diagnostic framework, we are able to evaluate the evidence and show that some constraints are more binding than others.

Despite serious issues in many other areas, we find that the binding constraint to stronger growth in Albania is a lack of productive knowhow. By “knowhow,” we mean the knowledge and skills needed to produce complex goods and services. Albania faces a unique knowhow constraint that is deeply rooted in its closed-off past, and the limited diversification that has taken place in the private sector can, in nearly all cases, be linked to distinct inflows of knowhow. The strongest sources of knowhow inflows into Albania have been through foreign direct investment and immigration, especially returning members of the diaspora who start new businesses or upgrade the productivity of existing businesses.

The evidence also points to particular failings in rule of law in Albania that play an important role in keeping Albania in a low-knowhow equilibrium. Weaknesses in Albania’s rule of law institutions, including frequent policy reversals and corruption in the bureaucracy and judiciary, increase the risk of investments and transaction costs of business. While it is difficult to separate perceptions from reality in this area, both perceptions of weak rule of law and actual rule of law failings appear to play critical roles in constraining more diversified investment in Albania. We find that while existing firms in Albania successfully navigate the rule of law weaknesses, and in some cases benefit from the system, potential new investors are acutely sensitive to rule of law issues.

 

alb_growth_diagnostic_report.pdf
Hausmann, R. & Nedelkoska, L., 2017. Welcome Home in a Crisis: Effects of Return Migration on the Non-migrants' Wages and Employment.Abstract

The recent economic depression in Greece hit the population of Albanian migrants in Greece particularly hard, spurring a wave of return migration which increased the Albanian labor force by 5 percent in less than four years, between 2011 and 2014. We study how this return migration affected the employment chances and earnings of Albanians who never migrated. We find positive effects on the wages of low-skilled non-migrants and overall positive effects on employment. The gains partially offset the sharp drop in remittances in the observed period. An important part of the employment gains are concentrated in the agricultural sector, where most return migrants engage in self-employment and entrepreneurship. Businesses run by return migrants seem to pull Albanians from non-participation, unemployment and subsistence agriculture into commercial agriculture. 

return_migration_cidwp_330.pdf return_migration_brief.pdf
2016
Guven, D. & Miagkyi, M., 2016. Albania's Credit Market.Abstract

Credit market activity in Albania has been sluggish in recent years in spite of low and declining interest rates. The economy lost its growth momentum after 2009. Investment and lending activity slowed down substantially despite low interest rates, relative macroeconomic resilience, and available capacity in the private sector to take on more debt. This study analyzes the supply (lenders’) and demand (borrowers’) sides of the market.

The reason behind the credit market failure is a supply-demand mismatch. Poor financial intermediation is the main problem on the supply side. Despite excess liquidity in the financial sector, banks are excessively risk-averse, bank practices and products are unsophisticated, and non-bank financial market is underdeveloped. Excessive risk aversion translates into tight credit standards, credit rationing and credit crunch for some economic sectors, in particular those dominated by SMEs. On the demand side, firms overall have a low appetite to expand, limited capacity to create bankable and financially viable projects, and are also constrained by infrastructural gaps and economic uncertainty. The mismatch results from the fragmentation of the credit market, with reliable borrowers from traditional sectors having easy access to finance, and other segments being almost fully deprived of credit.

Government and donor-led policies to mitigate the problem have had little success. Albania enjoys access to a number of domestic and external funding schemes primarily focused on alleviating funding constraints for credit-deprived sectors, but these programs have been ineffective. Further study is needed to understand the reasons behind the limited success of these programs.

A National Development Bank (NDB) could address some of the observed credit market challenges. While an NDB’s ability to directly resolve demand-side constraints would be limited, an NDB could effectively tackle supply-side constraints in the credit market as well as provide surveillance and collect information from the private sector, leverage technical assistance, and develop tailored financial products. Establishing an NDB should be considered carefully, taking into account functional, governance, funding, staffing and other risk factors.

210908_credit_market_report-final.pdf
Frasheri, E., 2016. Of Knights and Squires: European Union and the Modernization of Albania.Abstract

In this paper, I question the idea that a country develops and democratizes merely by pursuing a model of deeper regional integration with more prosperous countries. I examine the case of Albania’s integration into the European Union to show that more often than not, transition reproduces hierarchies and inequities that usually underpin relations between a prosperous center and a backward periphery. Instead of being a cure, a solution to the political primitivism and underdevelopment, the story with Europeanization as a model of modernization suggests that despite noble intentions and goals, reforms in the name of the European Union end up foregrounding a security state apparatus, impose an ideological hegemony, and maintain a political culture that inhibits democratization, while discouraging and displacing the need for endogenous growth strategies.

frasheri_cidrfwp_81.pdf

This paper is published in the North Carolina Journal of International Law (Volume 42, Issue 1) 

Of Knights and Squires: European Union and the Modernization of Albania
Frasheri, E., 2016. Of Knights and Squires: European Union and the Modernization of Albania. North Carolina Journal of International Law , 42 (1) , pp. 1.Abstract

In this paper, I question the idea that a country develops and democratizes merely by pursuing a model of deeper regional integration with more prosperous countries. I examine the case of Albania’s integration into the European Union to show that more often than not, transition reproduces hierarchies and inequities that usually underpin relations between a prosperous center and a backward periphery. Instead of being a cure, a solution to the political primitivism and underdevelopment, the story with Europeanization as a model of modernization suggests that despite noble intentions and goals, reforms in the name of the European Union end up foregrounding a security state apparatus, impose an ideological hegemony, and maintain a political culture that inhibits democratization, while discouraging and displacing the need for endogenous growth strategies.

Jimenez, A., 2016. Increasing Exports of Albanian Cultivated Fish to the EU,Abstract

This document explores Albanian aquaculture in the context of European aquaculture and compares it to neighboring countries, especially Greece. Using information from fieldwork, multiple reports by the United Nations’ Food and Agriculture Organization (FAO), and interviews with experts in government and non-government institutions, we analyze the production of European seabass and Gilthead seabream in Europe in general and in Albania in particular. Albanian cultivation of seabass and seabream has increased sevenfold since production started in the early 2000’s, but it represented only 0.38% of European aquaculture of these two species in 2013. Albania has significantly lower productivity than its neighbors, especially Greece, the dominant actor in the market. The analysis indicates that Albania’s lower productivity is caused by: (i) high costs of cages, fingerlings, and feed; which are all imported; (ii) lack of a formal fish market; and (iii) lack of clarity in the regulation. The document concludes by offering recommendations to get over these impediments for growth including reducing tariffs; encouraging national production of cages, fingerlings, and feed through investment in research; offering more and better financing options for cage acquisition; improving quality controls; establishing a national fish market; and passing the Aquaculture Law to bring clarity to the sector regulation.

increasing_exports_of_albanian_aquaculture.pdf
2015
Nedelkoska, L. & Khaw, N., 2015. The Albanian Community in the United States: Statistical Profiling of the Albanian-Americans.Abstract

When the Albanian Communist regime fell in 1991-92, many Albanians saw their future outside the borders of Albania. At that time in history, no one anticipated the scale of migration that would take place in the subsequent two decades. Today, one third of Albania’s 1991 population lives abroad. Most of these migrants live and work in neighboring Greece and Italy. The third most popular destination is however the United States. Besides this new wave of migrants, the US has an old Albanian diaspora–the offspring of migrants who came to the US between the First and the Second World War. This is what mainly gives rise to the second generation Albanian-Americans.

To the best of our knowledge, there is currently no systematic documentation of the socio-demographic and economic characteristics of the Albanian community in the US. To bridge this gap, we use data from the American Community Survey 2012 and analyze these characteristics. The profiling could be of interest for anyone who focuses on the Albanians abroad – the Government’s Programs dealing with diaspora and migration issues, researchers interested in migration questions, the Albanian Community Organizations in the US or the diaspora members themselves.

We find that the first and the second generation Albanian-Americans have distinctive features. The first generation (those who arrived after the fall of Communism) is more educated than the non-Albanian Americans with comparable demographics. This is particularly true of Albanian women. The education of the second generation resembles more closely the US population with comparable demographic characteristics.

Despite the qualification advantage, first generation Albanian-Americans earn much less than non-Albanian Americans with comparable socio-demographic characteristics. We find that this is not associated with being Albanian per se but with being an immigrant more generally. The migrant-native gap narrows down with time spent in the US.

An important channel through which the current gap is maintained is qualification mismatch. We observe that first generation Albanian-Americans are over-represented in occupations requiring little skills and under-represented in occupations requiring medium and high skills, in direct contrast to them being more educated than non-Albanians.

When it comes to the earnings of second generation Albanian-Americans, the situation is more nuanced. The low skilled Albanian-Americans earn significantly more, and the highly skilled Albanian-Americans earn significantly less than the non-Albanian Americans with comparable socio-demographic characteristics. We currently do not have a straightforward explanation for this pattern.

The Albanian population in the US is highly concentrated in a few states: New York, Michigan and Massachusetts account for almost 60% of all Albanian Americans. The community in Massachusetts is the best educated; best employed and has the highest earnings among the three, but is also the oldest one in terms of demographics.

However, due to its sheer size (over 60,000 Albanian-Americans), New York is the host of most Albanians with BA degree (about 10,000). New York also hosts the largest number of high earning Albanians (about 1,800 earn at least $100,000 a year).

usadiasporaprofile_final.pdf
Nedelkoska, L. & Kosmo, M., 2015. Albanian-American Diaspora Survey Report.Abstract

This survey studies the ways in which active Albanian-Americans would like to engage in the development of their home countries. Its results will help us define the focus of the upcoming events organized under the Albanian Diaspora Program.

Between March 6th and March 22nd 2015, 1,468 Albanian-Americans took part in the online survey, of which 869 completed the survey. The results presented in this report are based on the answers of the latter group. The results of this survey do not represent the opinions of the general Albanian-American community, but rather the opinions of those who are more likely to engage in an Albanian Diaspora Program.

The survey was jointly prepared with the following Albanian-American organizations: Massachusetts Albanian American Society (MAAS/BESA), Albanian American Success Stories, Albanian Professionals in Washington D.C., Albanian Professionals and Entrepreneurs Network (APEN), Albanian-American Academy, Albanian American National Organization, and VATRA Washington D.C. Chapter. The survey was sponsored by the Open Society Foundations, as a part of the grant OR2013-10995 Economic Growth in Albania granted to the Center for International Development at Harvard University.

diaspora_survey_results_report_v5.pdf
Paul, B.V., 2015. Assessing the Medicinal and Aromatic Plants in Albania.Abstract

Harvard University’s Center for International Development and the Government of Albania has been engaged in a two year growth strategy exercise starting in 2013 till 2015. Discussions with the Ministry of Agriculture yielded that there is a need for conducting value chain studies on a few important product groups with the following objective:

  • Cultivate ‘value chain’ oriented thinking within the Ministry of Agriculture
  • Identify key issues ‘within’ the particular product groups and ‘across’ different product groups that need to be tackled at the public policy level

Here is a value chain study of the Medicinal & Aromatic Plants (MAPs), specifically of sage and lavender. The products have been chosen given its huge importance in the economy as the largest export commodity in agriculture and their contributions to a farmer’s income. A special black-belt team comprising ministry officials will take forward the findings of this study and will iteratively make policy, ensuring better policies and implementation at the same time.

medicinal_aromatic_plants.pdf
Kumar, R., 2015. Conditions for Re-Opening Exports of Albanian Mussels to to the EU.Abstract

The Centre for International Development (CID) at Harvard University has been leading a two year project with the Government of Albania to help identify and implement growth strategies by studying the constraints that bind specific sectors. In May this year, the Ministry of Agriculture tasked CID to look at the ban imposed by the European Union (EU) on the export of mussels from Albania. The research was sponsored by the Open Society Foundations, as a part of the grant OR2013-10995 Economic Growth in Albania granted to CID.

During the research project, we studied the value chain of mussel production and certification in Albania, mapped the requirements laid down by EU legislation and identified shortfalls in compliance. This report presents our findings and recommendations.

The Butrint lagoon is the main production center for mussels in Albania. By 1989, production from the lagoon had increased to 5,000 tons per year. It dropped dramatically in the 1990s due to an outbreak of cholera and the subsequent ban on the export of mussels by the EU. The ban has not been lifted since. Albania still cannot export mussels to the EU because these do not meet the required sanitary standards.

Our research finds that lack of reliable and affordable purification facilities is at the root of the problem. Unless this constraint is alleviated, it will continue to frustrate efforts to ensure compliance with standards.

albanian_mussels.pdf
Orozco, M., 2015. The Demand for and Supply of Nostalgic Products among the Albanian-Americans: A Survey,Abstract

The U.S. is home to more than 200,000 ethnic Albanians, about half of whom are emigrants from the Republic of Albania. Despite the significant Albanian population in the U.S., official trade of Albanian goods in the U.S. almost does not exist.

We surveyed about 200 Albanian-Americans and several stores offering goods imported from the Balkan region of Europe in three U.S. metropolitan areas with large Albanian population in order to study their purchasing habits. We found that the willingness to purchase products from the region of origin is certainly not matched by an adequate supply. The stores which offer such products are few, often hard to reach and offer limited supplies of a small variety of commodities. In the study, we recommend steps to strengthen the market for nostalgic good through continued market research, trade-related technical assistance, diaspora-donor partnerships for nostalgic trade development and trade fairs.

nostalgic_trade_albanian_americans.pdf
Ali, O., 2015. Revitalizing the Albanian Electricity Sector ,Abstract

In an attempt to recuperate its dysfunctional electricity distribution system, Albania privatized its sole electricity distribution company in 2009. Disappointed with the results of the privatization, just five years later, the State of Albania renationalized the company.

The case study “Revitalizing the Albanian Electricity Sector” analyzes the key sources of inefficiencies in the electricity distribution sector in Albania and the structural problems of the current state-owned company. It explains how the tariff setting and the failed infrastructural investments triggered a chain effect of financial instability which spilled beyond the limits of the electricity sector and discusses possible reforms to the sector.

ali_ozair_electricity_sector_albania_2015_final.pdf
2014
Lawrence, R., Frasheri, E. & Qazi, M., 2014. Integration in the Balkans: Albania and Kosovo,Abstract

Despite their historic and ethnic ties, trade and investment between Albania and Kosovo remains underdeveloped. To be sure, even if fully developed, Kosovo is unlikely to play a major role in Albanian external economic relations. Nonetheless, increased economic integration between the two countries can serve as the basis not only for enhancing the ties between the two countries, but also for spurring the measures that could act as a springboard for Albania’s integration with respect to other countries in the Balkans as well as with the EU.  

integration_in_the_balkans-albania_and_kosovo_cid_report.pdf