The Effect of Institution Efficiency in Developing Albanian Economy

<p>After discussing effects of institutional efficiency on Albanian economy, this report has provided quantitative analysis to support the topic and highlight the effects of various financial elements and its role in growth of the economy. Along with the banking and financial development in the economy, various factors such as Freedom from corruption, Fiscal freedom, Business freedom, Labor freedom and Trade freedom are considered as independent variables showing institutional development in Albania. Foreign direct investment in the country was although having negative growth over the last few years, but it has resulted in the growth of domestic business development and production level. Overall GDP of the country was $12.90 billion in 2013 wherein FDI was 2.99 %. Considering FDI as the dependent variable, data were found to highlight the growth on factors mentioned above.</p> <p>Financial Freedom score for Albania's is 66.9 that make it world’s 54th nations for free to business in the 2014 Index. Its general score has expanded by 1.7 focuses, with eminent enhancements in trade as well as investment freedom. It led for venture opportunity and exchange flexibility. Albania is positioned 25th among the 43 nations in the European marketplace making it over the world’s average score.</p> <p>Over the 20-year history of the Index, Albania has progressed its monetary flexibility score by around 17 focuses, a main 20 change. With score expands in nine of the 10 financial opportunities, Albania has climbed bit by bit into the "respectably free" class. Prominent structural changes have included exchange liberalization, privatization, execution of focused level expense rates, and modernization of the nature's turf. Alongside the compelling support of low expansion, more noteworthy money related strength has likewise been attained.</p> <p>The legal stays subject to political obstruction, and deeper institutional changes to annihilate waiting defilement and expand legal autonomy are discriminating to guaranteeing more noteworthy financial opportunity in Albania. Climbing monetary shortages lately have expanded open obligation to over 60 percent of GDP, as far as possible set in 2008.From the spss data analysis, it can be understood that keeping FDI as the dependent variable, all the other element of institutional growth gets changed. There is a strong relation of FDI’s with the change in Freedom from corruption, Fiscal freedom, Business freedom, Labor freedom and Trade freedom. There is significant correlation between freedom from corruption and fiscal freedom at 0.01, significance level. Similarly at this point of significance level, it can be seen that there is a significant correlation between all the independent variable. Along with the change in growth of FDI, such factors play its role. In the marketplace of Albaian economy, such a significant level of growth in FDI has led to the development of freedom for doing business and generating employment. Government has also played an important role in it.</p> <p>From the results, it is clear that 95% variation in FDI is explained by independent variables. When in an economy, there is relaxation for global players to enter and less political interfere, it results in less corruption, business freedom, labor freedom, fiscal freedom and trade freedom. In Albanian economy over the last 10 years, we can see that score in financial freedom was about 30 earlier, but it increased to 70 now in 2013. Banking and financial development in the economy has resulted in expansion of domestic business in retail and manufacturing. This is why, it has affected the FDI level as well. Now various global players are looking forward to expand business in Albania for lowering down its cost of production and maximum use of resources.From the results presented, it is clear to at P<0.05, there is a positive and significant impact on FDI from Fiscal freedom, Business freedom, Labor, Trade freedom has positive and significant (P<0.05) impact on FDI.. However, corruption freedom has negative impact on FDI at significant level of P<0.05.