An empirical analysis of the FDI and economic growth relations in Albania: A focus on the absorption capital variables

Over the past three decades, Albania has had positive and increasing foreign direct investment (FDI) inflows that have brought significant changes in many economic sectors. The paper’s purpose is to analyze dynamic relationship between FDI growth, particularly emphasizing absorption capital variables. research question if human development level, technological development, trade openness, public expenses, financial system help or hinder materialization of expected effect on growth? We used empirical analyses evaluate these relationships based model created by Borensztein, De Gregorio, Lee (1998). changed a few variables model, we multivariate vector autoregressive (VAR) error correction (VECM) variables’ causal relationships. Some results achieved are consistent with other authors’ findings, so considered an essential element host countries’ absorptive capacity. In long run, Albania, FDI’s impact growth positively affects especially knowledge expertise development. However, difference index gives negative long-term opening statistically insignificant.