Impact of FDI in economic expansion: The Kosovo case

Author:Afrim Loku - Nadire Loku - Nora Vizdik
Pages:101-111
Vol. 3 No. 3
November 2017
ISSN 2410-3918
Acces online at www.iipccl.org
101
Academic Journal of Business, Administration, Law and Social Sciences
IIPCCL Publishing, Graz-Austria
Impact of FDI in economic expansion: The Kosovo case
Assoc. Prof. Afrim Loku
MSc. Nadire Loku
MSc. Nora Vizdik
Abstract
The Republic of Kosovo declared independence from Serbia in 2008. Kosovo's neighbor to the
north, Serbia does not recognize it as a sovereign state, but has begun to normalize relations
in accordance with the Brussels Agreement of April 2013. With a population of 1.8 million and
land area 6,765 square miles, landlocked Kosovo is considered Europe’s poorest country, yet it
does have some mineral and coal deposits.
Kosovo’s o cial unemployment rate is 35.3 percent, although some estimates are as high
as 45 percent. Unemployment levels for youth and rst-time job seekers are considerably
higher than the o cial rate. According to the World Bank, Kosovo’s economy is characterized
by: limited integration into the global economy; the success of its Diaspora in foreign labor
markets resulting in a steady stream of remi ances; pro-growth budgetary priorities; and
continued international nancial support. Political instability coupled with corruption --
practiced and perceived -- unreliable energy supply, a large informal economy estimated at 35
percent of GDP, and a lack of contract enforcement have created signi cant barriers to foreign
investment.1
Establishing appropriate policies regarding emigration and the status of the Kosovo Diaspora
are of key importance for stimulating growth reducing macroeconomic imbalances in Kosovo.
With appropriate policies and incentives, the Diaspora could contribute more e ectively, both
in terms of human capital and nancial resources, to economic growth and job creation in
Kosovo.2
Kosovo is at an early stage in developing a functioning market economy. Some progress was
made, particularly on supporting export-oriented businesses, improving contract enforcement,
especially within the nancial sector, and access to nance. However, the scally unsustainable
decisions related to war-veterans' bene ts may have a negative e ect on the macroeconomic
stability of Kosovo and its relations with international nancial institutions. The persistent
trade de cit re ects a weak production base and poor international competitiveness. Reliance
on remi ances and the widespread informal economy additionally decrease employment
incentives, resulting in low labour force participation, especially among women, and high
unemployment rates, in particular among young and unskilled workers. Kosovo is at an early
stage in building the capacity to cope with competitive pressures and market forces within the
Union. No progress was made on improving the quality of education, which is a key driver for
improving long-term growth and competitiveness.3
Foreign direct investment (FDI) is widely recognized for its positive impacts on economic
1 U.S Embassy (2016). Kosovo Investment Climate Statement 2016, p.3.
2 Riinvest Institute (2007). Diaspora and Migration policies, This study is prepared for Forum 2015
by Riinvest Institute based on the research conducted in Kosovo, Germany, Switzerland, Belgium,
UK, Sweden, Austria and The USA, Pristina, p. 13.
3 European Commission – Fact Sheet (2016). “Key ndings of the 2016 Report on Kosovo” ( le:///C:/
Users/Loku/Downloads/MEMO-16-3633_EN.pdf) , Brussels.

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