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 fi 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 fi 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 signifi 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 fi 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 fi nancial sector, and access to fi nance. However, the fi scally unsustainable

decisions related to war-veterans' benefi ts may have a negative e ect on the macroeconomic

stability of Kosovo and its relations with international fi nancial institutions. The persistent

trade defi cit refl 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 fi ndings of the 2016 Report on Kosovo” (fi le:///C:/

Users/Loku/Downloads/MEMO-16-3633_EN.pdf) , Brussels.