Ermelinda Gjika Xhaja

Abstract: Economic development in Albania has experienced its ups and downs from the post-communism period. The transition from a planned economy to the market economy has been more difficult than expected. Albania as a country striving toward European Union (EU) membership is still stuck in transition. Although the country has made some progress on the investment climate, the competitiveness of the economy within the Western Balkans and also with EU region, still it operates under economic potential. Albania has a number of advantages and unexploited resources to stimulate further investments and growth. The aim of this paper is to provide an overview of the Albania development indicators and explore the contribution of the capital to such growth. The paper is part of a deeper study on the Albanian convergence model toward Western Balkans and EU. The methodology of the paper makes use of time series data for a set of indicators such as GDP growth, transition indicators, fixed capital formation, investments. Comparisons are made also with other Western Balkans countries in some indicators. A calculation of the marginal product of capital is made in the paper to catch the contribution of capital to growth. The paper concludes that the contribution of capital has been essential in the growth but its efficiency and productivity has been put into question during the transition period. The model of Albanian economy model seems still at early transition stages and efforts are needed to improve the enabling environment for attracting more innovative and capital-intensive investments to make the country more competitive versus the region and EU.

Key words: economic growth; capital investments; transition economies