The Impact of Foreign Direct Investments On Economic Growth - Evidence From Albania

FDI investments are widely viewed as accelerators of economic growth in developing countries by governments, policymakers and institutions alike. FDI is thought an important channel through which technology is transferred to poorer countries and significant investments are realized in countries which otherwise have little resources and poor access to international financial markets. But this wide held view is not unchallenged. Several empirical studies (which will be subsequently reviewed in this thesis) have reached controversial results regarding the impact of FDI on growth and quite a few have identified negative effects on overall prosperity, most notably through the effects of FDI on the environment and domestic firms. We have recently seen a massive change on the pattern of the world’s economy. Free trade, free flow of capital and goods have become key words in this globalization era and FDI is increasingly being identified as a new avenue of financing economic growth. In some developing countries Foreign Direct Investments were mistrusted, considered as a threat for national sovereignty and multinationals were suspected to reduce social well-being by manipulating prices and formations of enclaves (Cardoso and Faletto, 1979). In many others developing countries, especially for transition countries, they were considered as a good way to build relationships with such a desired outside world. They were seen as a bridge to social development and updated information. The day after the fall of the communist system, Albania, a small country of South-eastern Europe’s Balkan Peninsula, was immediately hosting Foreign Direct Investments. To rebuild a country after a long time of living in a shell, try to find non-traditional investments sources, were seen as primordial for its development. FDI has come to play an important role so far as the country relied much on Foreign Aid and Foreign Direct Investments to regenerate its overwhelmed economy. It could be a particular matter of interest to study this country, along with other transition countries, as a result of a sudden openness and its proximity with two big economies as Greece and Italy. Albania has been granted approximatively 11, 7 billions of USD from 1992 until now. Thus, it is needed to be understood if this flux of investments has really impacted the economy. In order to analyse the attributes of the FDI in Growth, the study is divided into four different chapters: The First chapter is a summary of concepts and of the literature review regarding FDI and Growth. In the Second chapter we have tried to understand the patterns of FDI Globally, the spread of FDI according to economies, countries, sectors and their trends. The Third chapter is concentrated on the analysis of the estimated model, trying to explain if and how FDI could have an impact in the growth of the economy of the developing countries under analysis. Human capital is the channel chosen thorough FDI impact Growth. We show special interest in group-countries, splitting them by Income Group . The Fourth and last chapter gives an overview of the Albanian Economy and the evolution of FDI in Albania after 1990 by presenting a descriptive analysis of FDI, the principal foreign countries involved and sectors affected.