Trade Liberalization and Its Impact in Albania’s Sustainable Growth

Albania is currently very focused on growth and promotion of trade liberalization in the context of the ultimate goal which is the full integration into the European family, and within this framework our country has implemented and continues to implement economic policies that promote economic growth in the long term. However, several internal and external factors such as the high level of corruption, low technology, the global financial crisis, the lack of political stability has contributed to the efficiency and success this policy. This study aims to develop an econometric model for Albania to study the impact of trade openness on the trade balance and on macroeconomic aggregates (country's economic growth), called endogenous gravity theory (EGT) to develop a simple and flexible simultaneous equation model of openness in Albania with its largest trade partners as Italy. The study reveals efficient and reliable empirical findings on the link cause consequence of the elements trade- growth, including the impact of shocks (external crises) and trade policy reform between Albania and its trade partner Italy. The empirical findings suggest that openness between Albania and neighboring partner Italy is positive and statistically significant for economic growth in Albania. The variable “services liberalization” is small and negative and statistically significant to growth indicators. Moreover, the global financial crisis had a major negative and significant impact on Albania’s growth. On the other hand, FDI, financial system reforms and liberalization of capital flows were positive and important for growth and development. More specifically, the most important recommendation suggests that trade policymakers in Albania should implement the policy of openness, in accordance with regional agreements and bilateral and multilateral free trade agreements (FTA) to achieve long-term sustainable growth.