The Role of Investment on Albania's Long-Term Economic Growth

We use a nonlinear extended Solow model to empirically assess the role of investment on the post-communist Albania's long-term growth. Data used are obtained by the World Bank. They are annual observations from 1992 to 2011. We use a wide measure of investment that encompasses both productive and nonproductive investment. The model is estimated using the ARDL approach which is adequate when dealing with short time series. It is commonly used by other researches in studies where data are available for as short periods of time as ours. Thus, the estimation method mitigates the negative impact of the small sample size on the reliability of results. We find a positive nonlinear effect of investment on long-term growth in Albania. As investment increases its positive effect on the long-term growth eventually converges to the long- run growth rate of 2.2685%.