The Impact of Foreign Direct Investments (FDIs) on Economic Growth: The Solow Model in the Case of Albania

Llesh Lleshaj and Arben Malaj

European Journal of Economics and Business Studies Articles, 2016, vol. 2

Abstract: In the developing countries, including Albania, attracting FDIs remains a government priority towards development of investments and the whole economy. Therefore, the main objective of this paper is to analyze the impact of FDIs on economic growth (GDP level) in Albania. The analysis is based on the neoclassical growth model, following the Solow model. The dependent variable in the model is the GDP level and independent variables are: capital (foreign and domestic capital investments) and labor (average salary) for the period 1996-2013 with quarterly data. The results of the econometric analysis indicate that the Solow model is applicable in the Albanian economy, showing a positive correlation which is statistically significant between the explanatory variables and the dependent variable both in the short and long run. The impact of FDIs on GDP is several times smaller than the impact of domestic capital investments. This elasticity can be explained by the lower level of FDI inflows compared to the domestic capital investments and the limitations in evaluating the "endogenous" growth of FDIs. Whereas the analysis of the sector and country of origin concentration of the FDI stock is done using the Herfindal - Hirschman index for the period 2007-2013 and the results determine a significant concentration of FDI stock, based on three sectors and a few countries of origin.

Keywords: FDIs in Albania; Solow growth model; Herfindal - Hirshman index. (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://brucol.be/index.php/ejes/article/view/5283 (text/html)
https://brucol.be/files/articles/ejes_v2_i1_16/Llesh.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eur:ejesjr:75

DOI: 10.26417/ejes.v4i1.p152-162

Access Statistics for this article

More articles in European Journal of Economics and Business Studies Articles from Revistia Research and Publishing
Bibliographic data for series maintained by Revistia Research and Publishing ().