Remittances and FDI Effects on Economic Growth: A VECM and GIRFs for the Case of Albania

Abstract

This paper analyzes the effects of remittances and foreign direct investments (FDI) on economic growth, gross fixed capital formation (GFCF), and inflation in Albania through a vector error correction model. The results show that remittances Granger-cause positively economic growth short- and long-run and negatively inflation, while no significant relationship has been established between remittances and GFCF. The findings support that remittances, apart from affecting economic growth, disinflate the Albanian economy. With respect to FDI, there are signs that inflation Granger-causes negatively FDI, while there appears to be no relationship between FDI, economic growth, and capital formation.