Factors Determining Foreign Direct Investments in Albania

The foreign direct investments (FDIs) have taken a very great extent in the last decades in both developing and developed countries, having a positive impact on economic growth. This is mainly due to trade liberalization, as well as other advantages such as higher returns on investments, potential resource seeking, new market seeking, or cheap labor force. In developing countries investors face many risks that go beyond market risks such as corruption, unsustainable legal system, lack of proper definition of property rights, or high bureaucratic rules for businesses.The aim of this paper is to analyze the behavior of Foreign Direct Investments in Albania compared to other countries in the Western Balkans. The study focuses on the trend of Inward and Outward FDIs in Albania and the region for the period 1992-2011, as well as an analysis of the factors influencing FDI flows. The main result is that Albania stands on a very good position regarding FDI flows compared to other countries. This is mainly due to massive privatizations taken after the fall of communism and due to efforts by the Government for creating a business friendly environment.