On the Way to Europe: Economic and Social Developments in Albania

Abstract

Albania received candidate status for EU membership in 2014, and its political agenda is focused on European integration. This chapter analyses some important aspects of economic and social development in Albania on its road towards the EU. In particular, it focuses on economic growth, governance and the quality of institutions, foreign trade, competitiveness, the labour market, poverty and inequality. Despite high rates of growth, income per capita is relatively low compared with other European countries, and poverty has increased in recent years after a long period of falling poverty levels. Inequality of incomes has widened during the transition and has reached levels similar to other European market economies. Many institutional reforms need to be completed, including an improvement in the quality of institutions, the rule of law being a prominent example. Albania avoided the worst effects of the global economic crisis and the spillovers from the Eurozone crisis but at the expense of a steady increase in public and external indebtedness. In 2014, the country appealed to the IMF for financial support, which was given on condition that a policy of fiscal consolidation would be implemented. This may make it more difficult to expand redistributive social assistance programmes for the relief of poverty in the future. To overcome these limitations, policies should focus on improving the competitiveness of the economy, encouraging a faster rate of technological development and moving towards a path of high value-added production and trade to support the future development of the economy.