The Economy of Albania

Economic Development
According to the World Bank, the Gross Domestic Product of Albania was 13.22 billion USD in 2014, rank 122 globally. The GDP per capita was 4588.65 USD positioning Albania at rank number 101 in the world in terms of economic development.

However, GDP per capita in USD may not correctly reflect the real incomes in a country. Many countries with high income also have high prices and, similarly, many countries with low income have low prices. The purchasing power parity (PPP) income accounts for such differences in prices so we can answer the question: "What would be the income in Albania if its citizens paid U.S. prices?" World Bank data from 2014 show that GDP per capita in Albania in PPP terms was 10699 USD which places Albania at rank 93 in the world.

Yet, others argue that GDP per capita in USD or in PPP terms may be an incomplete measure of social welfare. For a more comprehensive indicator, we could look at the Human Development Index developed by the United Nations. The HDI ranges from 0 (low development) to 1 (high development) and reflects income as well as life expectancy and education. The value of the Human Development Index for Albania in 2014 is 0.733, rank 85 in the world.
Indicator
Value
Global rank
Year
GDP, billion USD 13.22 122 2014
GDP per capita, USD 4588.65 101 2014
GDP per capita, PPP, USD 10699 93 2014
Human Development Index 0.733 85 2014


International Trade and Investment
The total value of exports of goods and services from Albania to the rest of the world is 28.11 percent of its GDP. For that indicator, Albania ranks at place 118 globally. Note that if exports are greater than about 60 percent of GDP, this indicates an export-oriented economy. In contrast, values lower than about 15 percent of GDP indicate a relatively closed economy.

The trade balance of Albania, i.e. the value of exports minus imports, is -18.99 percent of GDP. Note that a negative number means a trade deficit and a positive number means a trade surplus. An even more useful indicator is the Current Account balance which includes the trade balance as well as income received or sent by the country and gifts and foreign aid. The value for Albania is -12.82 percent of GDP. Current account deficits greater than about 4 percent of GDP for many years are typically not sustainable. They have to be financed by new international debt every year leading to high levels of indebtedness and currency crises.

We can look at the international competitiveness of Albania using the Competitiveness index of the World Trade Organization. The index ranks countries on a 1 - 7 scale and reflects the stability of a country, its health, education, market efficiency, financial market sophistication, technological readiness, market size, and innovation. For that indicator, Albania is at rank 97 in the world with a value of 3.84 points.

Foreign direct investment into Albania was 1.15 billion USD in 2014 which is 8.66 percent of GDP. We look primarily at the percent of GDP as opposed to the dollar amounts because larger economies would normally attract greater volumes of foreign investment. Values above 4-5 percent of GDP suggest that the country is an attractive foreign investment destination.

Indicator
Value
Global rank
Year
Exports, percent of GDP 28.11 118 2014
Trade balance, percent of GDP -18.99 144 2014
Current account balance, percent of GDP -12.82 129 2014
Competitiveness index, 1 (low) - 7 (high) 3.84 97 2014
Foreign Direct Investment, percent of GDP 8.66 26 2014
Foreign Direct Investment, billion USD 1.15 84 2014


Financial System
The development of the banking system, a key part of the financial system of any country, is reflected in the level of credit to the private sector as percent of GDP. Credit allows firms to expand their production and to improve their technology. It also allows households to spread large expenses over time such as for a house, vehicles or education. The average value for the world for that indicator is about 45 percent of GDP. Values below 15 percent of GDP are considered very low whereas values in excess of 100 percent of GDP bring no additional benefit to the economy. According to the International Monetary Fund, the value of that indicator for Albania is 37.26 percent, rank 92 in the world.

In terms of access to banking services, we can look at the number of ATMs per 100,000 people, an indicator in the IMF's database on financial development. For Albania, the IMF reports 35.03 ATMs per 100,000 people which places Albania at rank 91 globally.

Indicator
Value
Global rank
Year
Bank credit to the private sector, percent of GDP 37.26 92 2014
ATMs per 100,000 people 35.03 91 2014


Rule of Law
The World Bank publishes a very useful index called "Rule of Law" that captures perceptions of the extent to which people in Albania and other countries have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. The index has been compiled for many years and is comparable across countries. You can click on the link to it in the table and explore its trends for Albania over time as well as its components. It ranges from -2.5 (weak rule of law) to 2.5 (strong rule of law). The rule of law in Albania is scored at -0.37 in 2015, rank 113 globally.

Transparency International is an NGO that has tracked the perceptions of corruption in many countries for many years. For each country, they collect data from multiple surveys and produce a composite measure: the "Transparency International Corruption Perceptions Index." The index ranges from 0 (pervasive corruption) to 100 (no corruption). Based on 2015 data, the value of that indicator for Albania is 36 which places Albania at position 88 in the world.

The "Civil Liberties" index published annually by the Freedom House measures the freedom of expression and belief, associational and organizational rights, rule of law, and personal autonomy and individual rights. The range is from 1 (strong civil rights) to 7 (weak civil rights). On that count, the score for Albania in 2014 was 3.
Indicator
Value
Global rank
Year
Rule of law, -2.5 (weak) - 2.5 (strong) -0.37 113 2014
Corruption Perceptions Index, 0 (high corruption) - 100 (low corruption) 36 88 2015
Civil Liberties, 1 (strong) - 7(weak) 3 See world ranking 2014


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