IMPACT OF FDIs AND FREE TRADE IN ECONOMIC GROWTH: CASE OF ALBANIA

Abstract

Is the relationship between openness and growth necessarily always positive? This is the question that this study tries to answer. This study will focus mainly on foreign direct investments, free trade and their impacts in economic growth, considering more the case of Albania. Importance will be given to the macroeconomic developments and dynamics in the course of transition years. In the second part of the study it will be presented the business climate, advantages and disadvantages of investing in Albania. Investments have played an important role in economic growth of the country. While entering market economy it was seen as crucial the need to attract Foreign Direct Investments and implement Free Trade Agreements in Albanian economy. Free Trade agreements have had a crucial role in the openness and growth of Albania economy. Positive and negative impacts have been observed on economic indicators such as inflation, unemployment rate and trade balance. Despite the inconveniences Albania shows also positives signs regarding FTAs, such as higher trade volume as a result of increasing exports and imports. This means that the country has forced its cooperation with partner countries. The goal of this study is to establish a relation between indicators such as: Foreign Direct Investments and GDP Growth for an interval of 18 years from 1994-2012. Based on the results of the model it could not be obtained the expected result, so the FDI high rate flows do not necessarily affect positively the GDP Growth rate in case of Albania.