Development and Limiting Factors of Economic Development in Albania for the Last Three Decades

Based on the data of the last thirty years (one third of the life of the Albanian state) economy in this paper will be presented in reference to significant economic and political factors that affect economic development.These factors are not object of bias, because of the political system, as no change, except could show a decrease of their influence. But, on the other hand they should not be confused with the factors that impede economic development.4 development factors (social, economic and political)1. Mining natural resources and energy resources, as well as a developed system of agriculture and livestock are the elements that are included in this very important factor for the country. Natural resources combined with the geographic location and other development factors give the economy the proper breathing to be developed low cost.2. Investment in development of assets (infrastructure, emerging industries) is a long-term factor for developing, to reduce the cost of economic activities. Attached to the industry development should never stop the factor of technological development, oriented from government programs. It is the accumulation and capital formation that increases industrial productivity, coupled with the workforce with high skills in terms of its use. The largest role remains to foreign investors, but without underestimating domestic investors, who should see the opening of the economy.3. The increase of the quantity and quality (value) of labor (human capital) and specifically the part that invest in increasing capacity and improving its quality is a significant factor with a direct impact on economic growth. Of course, the risk of lack from the intervention of government can create problems with the decrease of level of employment.4. A democratic political environment with a modern institutional framework should be considered as a factor contributing directly through the principle of good governance, which interferes in the regulation of the economy under the laws and rules. Every institution of government has its role in the economy, according to the functions for which is created. Macroeconomic stability reduces the risk of investment and in this context should be considered as a necessary condition in favor of economic growth.3 limiting factors (political, economic and social)1. The political instability and uncertain institutions and inflexible in implementing legal system (physical and intellectual property, financial system, taxes), widespread political corruption, poor macroeconomic management, limited economic freedom and limited opening of markets. Reduction of customs tariffs (trade barriers) are a prerequisite in favor of economic growth, through their effect on the function of expanding of markets and increase of penetration of products between countries (especially cross-border ones).2. Low level of workforce skills, lack of knowledge to the modern technology, lack of political culture, cultural and social, limited labor market3. Old technology and low investments for its develop, orientation of economy that excludes technology (trade, tourism), investments that doesn’t favor long-term development, and poor infrastructureAnalyze applies to all limiting factors as below, which have been since the early 90s and still continue to be so, the three together over the last two decades.Based on the combined analysis and the comparative data on the performance of the economy, and the level of influence of factors in the economy of the past thirty years (1980 -2011), if it can be divided into three parts shows that for the first decade there has been a limiting use of the first factor and fourth.Dominant part of economic development during the first period (1980-1990) consisted of exploitation and processing of mineral natural resources, mainly for export to the extent of 20% of GDP, and the development of agriculture’s for domestic consumption and export to the extent of 55% of GDP. Even government through institutions exercised a strong authority and political stability for economic and social development. Obviously, the impact of only these factors can’t give effect to economic growth, which fell on average by 4 percentage points compared with the average of the previous decade economic development. Lack of freedom of de facto property according to the model of the self-administration for the rural areas was the end of a model that was not to increase the economy, but the opposite. The year 1989 is different (9.8% increase), because being the year that followed the debate a year ago to change the political regime through change of the economy. This historic change was preceded by some initial ways of liberation from the yoke of socialist economy itself. A complete and comprehensive analysis of the factors did not take place even though there are specific analyses of professors of economics.The second half of the period (1991-2000) is dominated by a use of all the factors, but not coordinated in time and space with each other. Lack of capital continued to be the cause of poverty in the country. This is the period, when natural mineral resources were not part of the new technology investment, in agriculture was not followed by investment for as long as to replace its leadership role in the economy. Freedom of the property was declared, but began to turn into a freedom that ‘kills’. Private property does not become sacred to the economy. In this way, was not achieved the encouragement of the individuals and investors to begin to invest money to maximize their profit in the new economy and to give breathe for long-term perspectives of economy based on property development. But, quite wrong economic direction of political and economic leadership of the time was clearly reflected in allowing the pyramid scheme. All this showed immaturity of leadership to lead the country towards economic development.But are learned the lessons by the leadership or anybody of them felt the responsibility? Can be feel all quiet now?Investments in the industry that somehow will have shaped the economy were sporadic and oriented to the politics of the moment, without the proper vision that requires the open economy. Attached with the economic and social situation was the lack of a growth orientation of human resources for training towards a specific industry, excluding initiatives with little weight on the economy through processing of imported raw materials for exporting to European markets (fa├žon contract).For the third period (the last decade) has been growing interest in natural resources, but increase of political patronage versus the resources of the economy, for own private interest in leadership, today old, did not create any opportunities for the organization and strengthening of investment in extractive industry and agro-industry. Although, the factors have been involved in a discrete mode, where the EU statistics, and of the Albanian institutions show for Foreign Direct Investment funds that reached up to the level of 9% of GDP, the economy does not got the proper quantity of ‘energy’ in order to have a sustainable economic development, based on the coordination of the four factors. So, if it were otherwise, then the economy will had a continuing growth trend. But, in fact the decline of growth happened for at least the last four years. The largest increase was in 2008 (7.5% increase) and immediately in following year the growth was slowed down and was less than half (3.3% increase), without changing of external factors, or internal. The economy did not had an immediate effect from the non coordination of the factors. In segments of industry and government the ideas were misused in favor of the private interests of fictitious economic elite.The coming years should serve as a prelude to the start of the project to long-term sustainable economic development (economic policy) of Albania of tomorrow, based on the model that passes through the four points above, as a theorem that is implemented from all states already, seeking development through the model.How will know us if the government will carry out its duties and will be a factor of economic growth developer?The answer can be found in monitoring the quality of governance (World Bank) that could be measured through accountability, political stability, absence of state violence, effectiveness of governance, institutional framework, implementation of laws at full capacity, and control of corruption.

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Rational Self-Interest and Psychology in Economics

I am going to tackle a very serious subject – one of the axioms that are central to classical economic theory. Classical economics states that economic decisions are driven by rational self-interest. I am parting with that axiom and suggest the following: That while some economic decisions are in fact based on rational factors, many more are based on psychological and emotional factors. And the amount of economic decisions based on these factors is vast.I start here with the most obvious examples. A person who stuffs herself with food until she becomes obese and diabetic, or a person who spends all his money on gambling, is clearly not driven in consumption decisions by reason at all. Such a person is driven by factors that are not rational in any manner and that are in nature psycho-pathological. It occurs to me that similar psychological factors extend far beyond these obvious examples and apply to many people, including ones who are not gambling addicts or who are morbidly obese.Here is an economic choice based in rational self-interest: A comfortable, affordable, fuel efficient vehicle. Here is an economic choice not based in rational self-interest: A hugely expensive, polluting vehicle such as the Hummer. Here is an economic choice based in rational self-interest: Nice looking affordable clothes. Here is an economic choice not based in rational self-interest: Super-expensive clothes that one buys because they are in fashion. Here is an economic choice based in rational self-interest: A functional, comfortable, affordable house or condo. Here is an economic choice not based in rational self-interest: A vast house that one’s wife has to spend six hours a day cleaning. Here is an economic choice based in rational self-interest: Nice simple shoes. Here is an economic choice not based in rational self-interest: Expensive trendy sneakers that one needs to sell drugs in order to procure. Here is an economic choice based in rational self-interest: One plastic surgery treatment when one’s features are disfigured. Here is not an economic choice based on rational self-interest: Many plastic surgery treatments when one is already beautiful.Some economic choices are based in rational self-interest. They however do not begin to include the total sum of economic choices that people make.The biggest argument against the idea that all economic choice is based on rational self-interest is not any of the above. Instead is the fact that many products that are bought, are bought not because of the quality of the product but because of the quality of the marketing. A consumer driven by rational self-interest would buy the superior product; but time and again – with Beta vs. VHS, with Borland vs. Microsoft, with mom-and-pop shops vs. fast food chains – we see inferior product dominating the market. The reason that these inferior products dominate the market is that their makers are better at marketing. And choices based on marketing are not choices based on reason. They are choices based on psychology.Why are these choices based on psychology? Because that is what is targeted by most marketing campaigns. Very little of ads out there are simply and rationally stating the benefits of the product. They use all sorts of psychological devices to manipulate people into buying the product. Advertising very rarely targets reason exclusively; far more often it plays with people’s emotions. Which makes these emotions, as manipulated by the marketer, the centerpiece of a vast chunk of economic choices that people make.Does this make most economic choices that people make wrong? No; but what it does show is that many of these choices are not based on what classical economic theory regard them to be based upon. Does this damn capitalism? No, but it shows where one of its major axioms is incomplete. Yes there are economic choices that are driven by rational self-interest; but there are many economic choices that are not driven by rational anything, and it’s important to take such things into account whether one is a consumer, a producer or a policy maker.The consumer on his part needs to learn more about psychology so as not to be as vulnerable to psychological manipulation by marketers. The policy maker needs to see where someone is taking advantage of people and do what he needs to do to stop the unscrupulous practices. And the honest producer, such as Borland and mom-and-pop shops, need to see where their competition is using unethical ways of marketing and respond with effective and intelligent marketing on their own part. I do not advocate Communism. I advocate a more ethical capitalism. And that means, first and foremost, seeing where people are being taken advantage of and putting a stop to the unethical economic practices that play them for fools.Of course a large part of the burden for this lies with the consumers themselves, who frequently are either not thinking or are thinking stupid. Many of these problems stand to be solved by broad-based education that teach people better thinking habits so that it’s not as easy to take advantage of them, and also so that they exercise greater discretion and responsibility in their economic decisions. The more choices are actually based on rational interest, the more the economy functions as advertised; the more they are based on psychological manipulation, the more the economy turns into an unethical and irresponsible plutocracy that treats people as idiots and laughs all the way to the bank.At the very least it is important to make this clarification. An economic theory that fails to see a vast chunk of the reasons for people’s consumption decisions is a theory that is incomplete. The role of psychology in consumption decisions must be examined and credited for the large chunk of consumption decisions for which it is responsible. And based on that it can then be possible to determine which economic practices lead to people’s benefit and which economic practices do not.