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In e na ional Jou nal o Managemen and Economics
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ISSN: 2395-7220
DOI: 10.47191/ijmei/ 11i11.01
Volume: 11 Issue: 11 No embe 2025
In e na ional
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Page no. 4790-4795
4790
Ro ena BEGA1, IJMEI Volume 11 Issue 11 No embe 2025
Financial S abili y and Economic De elopmen in Albania: An Empi ical
Analysis
MSc. Ro ena BEGA1, P o . D . Ines DIKA2
1Finance Accoun ing Depa men , “Eq em Çabej” Uni e si y, Gji okas e , Albania
2Finance Accoun ing Depa men , Uni e si y o Ti ana, Albania
ARTICLE INFO
ABSTRACT
Published Online:
07 No embe 2025
Co esponding Au ho :
MSc. Ro ena BEGA
The ela ionship be ween inancial s abili y and economic de elopmen emains a cen al heme
o ansi ion economies, whe e ins i u ional agili y and ma ke impe ec ions o en ampli y
he e ec s o ex e nal shocks. This pape in es iga es he Albanian expe ience om 1990 o
2025, ocusing on he in e play be ween mac o- inancial s abili y, s uc u al e o ms, and socio-
economic de elopmen . Unlike s udies concen a ed on mone a y policy alone, his esea ch
emphasizes he b oade ins i u ional and inancial landscape, including he ole o he banking
sec o , iscal sus ainabili y, emi ances, and in es men lows.
D awing on seconda y da a om he Bank o Albania, INSTAT, he Minis y o Finance, IMF,
Wo ld Bank, and Eu os a , he analysis applies econome ic models and compa a i e me hods.
I e alua es how luc ua ions in in la ion, in e es a es, iscal balance, and c edi dynamics ha e
in e ac ed wi h g ow h ou comes ac oss di e en s ages o ansi ion. The s udy also highligh s
he impo ance o ins i u ional shocks, such as he 1997 collapse, alongside global c ises like
he 2008 inancial c isis and he COVID-19 pandemic, in shaping Albania’s de elopmen pa h.
The indings e eal ha while inancial s abili y is a necessa y condi ion o sus ainable g ow h,
i has no been su icien on i s own. G ow h pe iods ha e o en coincided wi h emi ance
in lows, s uc u al e o ms, and o eign in es men , a he han pu ely domes ic inancial
discipline. Con e sely, ins abili y has deepened inequali ies and slowed he con e gence
p ocess wi h he Eu opean Union. The esul s unde line he complexi y o Albania’s ajec o y,
whe e de elopmen has been d i en by a combina ion o in e nal e o ms, ex e nal in eg a ion,
and esilience o ecu ing c ises.
The pape con ibu es o he li e a u e by o e ing a long- e m pe spec i e on Albania’s inancial
and economic ans o ma ion. I a gues ha building sus ainable de elopmen equi es
s eng hening ins i u ional amewo ks, di e si ying sou ces o g ow h, and educing s uc u al
ulne abili ies. This app oach highligh s policy lessons ele an o o he small ansi ion
economies acing simila challenges.
KEYWORDS: Financial S abili y; Economic De elopmen ; Albania; S uc u al Re o ms; T ansi ion Economies; Remi ances;
EU Con e gence
1. INTRODUCTION
The in e connec ion be ween inancial s abili y and economic
de elopmen has long been a ocus o economic esea ch,
pa icula ly o ansi ion economies ha ha e aced
s uc u al and ins i u ional ans o ma ions. The heo e ical
ounda ions o his deba e da e back o classical and
neoclassical economis s, who conside ed s able inancial
sys ems as c ucial o capi al accumula ion and g ow h
(Schumpe e , 1934; Goldsmi h, 1969). Mo e ecen
con ibu ions emphasize he ole o inancial ma ke s in
channeling sa ings in o p oduc i e in es men , while
highligh ing he isks o ins abili y and sys emic c ises
(Le ine, 1997; Minsky, 1986). Fo de eloping and ansi ion
economies, inancial s abili y is o en ega ded as no only a
mac oeconomic objec i e bu also a necessa y condi ion o
sus ainable de elopmen and ins i u ional consolida ion.
Albania ep esen s an in e es ing case wi hin his deba e.
Since 1990, he coun y has unde gone a p o ound ansi ion
“Financial S abili y and Economic De elopmen in Albania: An Empi ical Analysis”
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om a cen ally planned sys em o a ma ke economy, acing
mul iple shocks along he way. The collapse o py amid
schemes in 1997, he global inancial c isis o 2008, and he
COVID-19 pandemic each e ealed di e en dimensions o
agili y in he Albanian inancial and economic sys em.
While e o ms ha e s eng hened he banking sec o and
imp o ed mac oeconomic s abili y, pe sis en challenges
such as high public deb , s uc u al in o mali y, and shallow
capi al ma ke s con inue o limi Albania’s g ow h po en ial.
Exis ing li e a u e on ansi ion economies in Cen al and
Eas e n Eu ope (Campos & Co icelli, 2012; Becke e al.,
2010) sugges s ha inancial s abili y plays a dual ole: i ac s
as a sa egua d agains ola ili y, bu i also se es as a ca alys
o long- e m g ow h when combined wi h ins i u ional
e o ms. Howe e , he case o Albania has no been s udied
ex ensi ely in a long- e m empi ical amewo k ha co e s
he en i e pe iod om 1990 o he p esen . Mos s udies ha e
ocused ei he on mone a y policy c edibili y o on iscal
sus ainabili y, lea ing a gap in he comp ehensi e analysis o
he ela ionship be ween inancial s abili y and de elopmen .
This pape seeks o add ess ha gap by examining Albania’s
expe ience o e h ee and a hal decades. The s udy
in es iga es how mac o- inancial indica o s—including
in la ion, in e es a es, public deb , iscal balance, and c edi
dynamics—ha e shaped economic pe o mance ac oss
di e en phases o ansi ion. By si ua ing Albania wi hin he
b oade con ex o he Wes e n Balkans and he Eu opean
Union, he esea ch p o ides insigh s in o bo h he domes ic
d i e s o g ow h and he ex e nal p essu es in luencing he
coun y’s ajec o y. The ul ima e objec i e is o con ibu e o
he li e a u e on ansi ion economies while o e ing policy
ecommenda ions ailo ed o Albania’s ongoing in eg a ion
in o Eu opean economic s uc u es.
2. LITERATURE REVIEW
A la ge body o esea ch has examined he ela ionship
be ween inancial s abili y and economic de elopmen ,
emphasizing ha his link is no linea and la gely depends on
ins i u ional quali y and he s age o a coun y’s de elopmen .
In ea ly s udies, F y (1995) and King & Le ine (1993) a gued
ha inancial dep h, measu ed by indica o s such as p i a e
sec o c edi o mone a y agg ega es, is posi i ely associa ed
wi h ou pu g ow h, as inancial in e media ion imp o es he
alloca ion o sa ings. On he o he hand, A es is and
Deme iades (1997) poin ed ou ha an uns able inancial
sys em can gene a e ad e se e ec s by discou aging long-
e m in es men and inc easing sys emic isk.
In he analysis o ansi ion economies, Be glö and Bol on
(2002) s essed ha inancial libe aliza ion in Eas e n Eu ope
o en aced ins i u ional challenges, sugges ing ha
de eloping inancial ma ke s wi hou complemen a y
e o ms does no au oma ically esul in g ow h. The ole o
ins i u ions was also highligh ed by La Po a e al. (1998),
who showed ha legal p o ec ion o c edi o s and
en o cemen o con ac s de e mine he e iciency o inancial
in e media ion. Simila ly, Rajan and Zingales (1998) a gued
ha he opening o ma ke s and inancial compe i ion
imp o e e iciency, bu only when accompanied by clea
ules and e ec i e supe ision.
Empi ical e idence om Rajhi (2013) and Ége e al. (2006)
o Cen al and Sou heas e n Eu ope sugges s ha he e ec s
o inancial s abili y on g ow h a e o en condi ional and
eme ge in he long un, whe eas sho - e m dynamics a e
mo e in luenced by cyclical shocks. Roubini and Sala-i-
Ma in (1992) linked high in la ion and unsus ainable iscal
policies o slowe de elopmen , unde lining ha
mac oeconomic s abili y is a undamen al componen o
g ow h. Co a elli e al. (2005), in hei s udy on he Wes e n
Balkans, no ed ha emi ances and capi al in lows played a
s abilizing ole, bu hei impac on de elopmen depends on
how e ec i ely hey a e channeled in o p oduc i e uses.
A mo e ecen s and o he li e a u e has also ocused on
inancial inclusion. Beck, Demi güç-Kun , and Honohan
(2009) demons a e ha b oade access o banking and
inancial se ices imp o es no only g ow h ou comes bu
also hei dis ibu ion, helping o educe inequali ies.
Howe e , as Claessens (2006) cau ions, apid c edi
expansion in de eloping coun ies wi hou p ope
mac op uden ial ins umen s can lead o c ises and
des abiliza ion.
O e all, he li e a u e sugges s ha he ela ionship be ween
inancial s abili y and economic de elopmen is complex,
media ed by ins i u ional quali y, he s uc u e o he inancial
sys em, and he abili y o abso b ex e nal shocks. Fo
Albania, which has expe ienced a long and challenging
ansi ion, applying hese insigh s in a long- e m amewo k
co e ing 1990–2025 is essen ial o de e mine whe he
inancial s abili y has ac ed p ima ily as a p econdi ion o
de elopmen o a he as a consequence o i .
3. METHODOLOGY
The esea ch is based on a desc ip i e–compa a i e and
econome ic app oach, co e ing he pe iod 1990–2025.
Unlike s udies ha ocus na owly on mone a y policy
amewo ks, his pape adop s a b oade pe spec i e by
combining inancial, iscal, and ins i u ional indica o s.
Da a a e collec ed om seconda y sou ces, including he
Bank o Albania, INSTAT, he Minis y o Finance, he IMF,
Wo ld Bank, and Eu os a . The analysis uses mac o- inancial
a iables such as in la ion, public deb , iscal balance, c edi
o he p i a e sec o , and emi ances, alongside socio-
economic ac o s like FDI and go e nance indica o s.
The me hodological amewo k has wo componen s:
1. Compa a i e analysis, which e alua es Albania’s
inancial and iscal indica o s in ela ion o Wes e n
Balkan coun ies and he EU a e age, highligh ing
con e gence and di e gence ends.
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2. Econome ic analysis, which employs a simpli ied
mul iple eg ession model o es ima e he impac o
inancial s abili y indica o s on economic g ow h.
C isis dummy a iables a e included o 1997,
2008–2009, and 2020–2021 o cap u e sys emic
shocks.
By in eg a ing inancial, iscal, and ins i u ional dimensions,
he me hodology p o ides a comp ehensi e bu lexible
amewo k o unde s anding he long- e m ela ionship
be ween inancial s abili y and de elopmen in Albania.
3.1 Empi ical Findings
An o e iew o Albania’s mac o- inancial indica o s om
1990 o 2025 e eals clea phases o ansi ion. The ea ly
1990s we e ma ked by hype in la ion and ins i u ional
agili y, ollowed by he sys emic collapse in 1997. Du ing
he 2000s, inancial s abili y imp o ed, wi h in la ion
declining o single digi s and c edi o he p i a e sec o
expanding apidly. The 2008 global inancial c isis slowed
g ow h and e ealed he ulne abili y o Albania’s banking
sys em o ex e nal shocks. The COVID-19 pandemic in
2020–2021 again es ed esilience, wi h a con ac ion o
ou pu and a empo a y ise in iscal de ici s.
Table 1. Compa a i e Fiscal and Financial Indica o s (2024)
Coun y
Public Deb
(% o GDP)
Fiscal Balance
(% o GDP)
P i a e C edi
(% o GDP)
Tax Re enue
(% o GDP)
Employmen
Ra e (%)
Albania
69
-2.9
37
26
62
Se bia
55
-2.4
47
37
64
N.
Macedonia
60
-3.1
49
30
61
Mon eneg o
72
-4.0
55
33
60
Koso o
33
-2.0
40
27
59
EU a e age
82
-3.0
90+
41
72
Sou ce: Bank o Albania, INSTAT, IMF, Eu os a 2024
The compa ison shows ha Albania lags behind bo h he
Wes e n Balkans and he EU in e ms o inancial dep h
(c edi o he p i a e sec o ) and iscal capaci y ( ax e enue).
While public deb le els a e mode a e compa ed o he EU
a e age, hey emain high ela i e o he coun y’s g ow h
po en ial.
The 1990s we e ma ked by hype in la ion and se e e ou pu
con ac ion, culmina ing in he 1997 collapse. Since he
2000s, in la ion has emained in single digi s, suppo ing
mo e s able g ow h.
Sou ce: Bank o Albania
The global inancial c isis (2008–2009) and COVID-19
pandemic (2020) caused empo a y down u ns, unde sco ing
he ulne abili y o he Albanian economy o shocks.
Public deb ose signi ican ly a e he global inancial c isis
and again du ing he COVID-19 shock, eaching a ound 70%
o GDP.
“Financial S abili y and Economic De elopmen in Albania: An Empi ical Analysis”
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Sou ce: Bank o Albania
Fiscal de ici s emain pe sis en , indica ing s uc u al
weaknesses in e enue collec ion and expendi u e con ol.
While deb le els a e mode a e compa ed o he EU a e age,
hey pose signi ican challenges gi en Albania’s lowe iscal
capaci y.
Albania’s inancial dep h emains shallow compa ed o
Wes e n Balkan pee s. P i a e c edi expanded in he mid-
2000s bu s agna ed a e he 2008 c isis.
Sou ce: Bank o Albania
By 2024, Albania’s c edi - o-GDP a io was only 37%, well
below Mon eneg o (55%) and No h Macedonia (49%). This
limi s in es men and educes he ans o ma i e po en ial o
inancial s abili y.
Remi ances ha e his o ically p o ided s abili y, peaking
abo e 20% o GDP in he 1990s and ac ing as a bu e du ing
c ises (e.g., 2020).
Sou ce: Bank o Albania
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FDI in lows inc eased a e 2000, eaching 5–7% o GDP in
ecen yea s, concen a ed in ene gy and in as uc u e. Bo h
lows play complemen a y oles bu a e insu icien o eplace
s uc u al e o ms.
3. Reg ession Resul s
The econome ic analysis con i ms a mixed ela ionship
be ween inancial s abili y and economic de elopmen .
In la ion is nega i ely co ela ed wi h g ow h, suppo ing he
iew ha p ice s abili y is a p e equisi e o sus ainable
de elopmen . Public deb and iscal de ici s exe a
signi ican nega i e e ec once hey exceed h eshold le els,
highligh ing he impo ance o iscal discipline. C edi o he
p i a e sec o con ibu es posi i ely o g ow h, bu he e ec
is modes due o he shallow inancial ma ke and high le els
o non-pe o ming loans. Remi ances and FDI show a
posi i e bu condi ional impac : hey suppo g ow h du ing
s able pe iods bu a e less e ec i e du ing imes o c isis.
Ins i u ional quali y, measu ed h ough go e nance
indica o s, eme ges as a c ucial ac o in ampli ying he
bene i s o inancial s abili y.
4. C isis E ec s
The inclusion o dummy a iables indica es ha he 1997
c isis had he la ges nega i e shock, educing GDP g ow h
by mo e han 7 pe cen age poin s. The 2008 c isis had a
smalle bu pe sis en e ec , slowing g ow h o e se e al
yea s. The COVID-19 pandemic caused a sha p con ac ion
in 2020, bu eco e y was ela i ely as e due o in e na ional
assis ance and iscal suppo .
Table 2. C isis Episodes and G ow h Impac in Albania
C isis Episode
Yea (s)
GDP G ow h Impac
Main Channels
T ansi ion Shock
1992–1993
-10 o -7%
Hype in la ion, collapse o ou pu
Py amid C isis
1997
-7%
Ins i u ional b eakdown, un es
Global C isis
2008–2009
-3%
Banking exposu e, slowdown in ade
COVID-19 Shock
2020
-4%
Lockdowns, ou ism collapse
Sou ce: Bank o Albania, INSTAT, IMF, Eu os a 2024
5. DISCUSSION
The esul s sugges ha inancial s abili y is a necessa y bu
no su icien condi ion o economic de elopmen in
Albania. S abili y suppo s g ow h only when combined wi h
s uc u al e o ms, ins i u ional c edibili y, and e ec i e use
o ex e nal in lows. The pe sis ence o high in o mali y, weak
ax collec ion, and limi ed inancial inclusion educes he
ans o ma i e po en ial o inancial s abili y. Compa ed o
egional pee s, Albania’s main challenge emains he quali y
o i s ins i u ions and he dep h o i s inancial sys em, bo h
o which a e essen ial o sus ainable con e gence wi h he
EU.
CONCLUSIONS
This s udy examined he long- e m ela ionship be ween
inancial s abili y and economic de elopmen in Albania o e
he pe iod 1990–2025. The empi ical esul s and compa a i e
analysis demons a e ha inancial s abili y has been a
necessa y condi ion o economic g ow h bu has no been
su icien on i s own o gua an ee sus ained de elopmen .
Episodes o ins abili y—such as he 1997 inancial collapse,
he 2008 global c isis, and he COVID-19 pandemic—
e ealed he ulne abili y o Albania’s economic model and
he impo ance o esilience-building measu es.
The indings highligh se e al key conclusions:
1. P ice s abili y has been essen ial o economic
eco e y and g ow h, wi h in la ion con ol se ing
as a co ne s one o mac oeconomic s abili y.
2. Fiscal discipline emains a pe sis en challenge.
Rising public deb and ecu en de ici s cons ain
g ow h and limi iscal space o de elopmen
p ojec s.
3. Financial dep h is limi ed. Shallow c edi ma ke s
educe he capaci y o inancial s abili y o ansla e
in o in es men and p oduc i i y gains.
4. Ex e nal in lows such as emi ances and FDI ha e
played a s abilizing ole, bu hei de elopmen al
impac has been condi ional and une en.
5. Ins i u ional quali y eme ges as a decisi e ac o in
shaping how inancial s abili y ansla es in o long-
e m de elopmen ou comes.
O e all, Albania’s expe ience sugges s ha while inancial
s abili y is indispensable, i mus be complemen ed by
s uc u al e o ms and ins i u ional s eng hening o achie e
sus ainable and inclusi e g ow h.
RECOMMENDATIONS
1. S eng hen iscal sus ainabili y: Implemen
medium- e m iscal amewo ks o educe de ici s
and s abilize deb dynamics, while imp o ing ax
collec ion e iciency.
2. Deepen inancial ma ke s: Encou age
di e si ica ion beyond bank lending by de eloping
capi al ma ke s, leasing, and en u e inancing
ins umen s o suppo long- e m in es men .
3. Enhance inancial inclusion: Expand access o
inancial se ices o SMEs, u al households, and
“Financial S abili y and Economic De elopmen in Albania: An Empi ical Analysis”
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ulne able g oups, he eby inc easing he
de elopmen al impac o c edi .
4. Imp o e ins i u ional amewo ks: S eng hen
ule o law, con ac en o cemen , and egula o y
supe ision o educe sys emic isks and build
in es o con idence.
5. Le e age ex e nal in lows e ec i ely: Channel
emi ances and FDI owa d p oduc i e sec o s such
as manu ac u ing, ene gy, and echnology, a he
han consump ion o specula i e eal es a e.
6. Inc ease esilience o c ises: Adop
mac op uden ial ools and con ingency planning o
mi iga e he impac o ex e nal shocks, d awing
lessons om he 1997 collapse, he global inancial
c isis, and he pandemic.
7. Accele a e EU in eg a ion e o ms: Align
inancial and iscal go e nance s anda ds wi h EU
p ac ices o enhance c edibili y, educe isk
p emiums, and os e con e gence wi h ad anced
economies.
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